With the US economy expanding at a respectable pace, companies hiring and consumers inclined to spend, Federal Reserve policy-makers can feel comfortable about boosting short-term interest rates for a fourth time this year.
That's the feeling among economists who believe the Fed will stay the course of the current credit-tightening campaign it started in June. Fed Chairman Alan Greenspan and his colleagues want to continue moving a key rate from extra-low levels to more normal ones now that the economy's recovery from the 2001 recession is more deeply rooted.
Despite surging oil prices -- which have retreated in recent days -- inflation isn't an immediate threat to the economy, analysts said. The Fed, however, wants to make sure it doesn't become a problem in the future.
Economists believe the Federal Open Market Committee -- the group that sets interest rate policy in the US -- will increase the target for the federal funds rate to 2 percent from 1.75 percent at its meeting yesterday. An afternoon announcement was expected. The funds rate is the interest that banks charge each other on overnight loans and is the Fed's primary tool for influencing economic activity.
"The economy had been facing two significant barriers or question marks -- slow job growth and high oil prices. Both of those negatives have turned significantly more favorable just within the last week," said Lynn Reaser, chief economist at Banc of America Capital Management.
The economy added a sizable 337,000 jobs in October, the most since March, the government said last week. While the figures were helped by job gains related to hurricane cleanup efforts, they nonetheless raised hopes that the recovery in the labor market, which has been uneven, is gaining some real traction.
Oil prices, which hit a record high of just over US$55 a barrel late last month, settled at US$47.37 on Tuesday.