Oil prices may be on a rollercoaster ride, but in terms of interest rate increases at the US Federal Reserve, it has been steady as she goes. And economists expect it to remain so.
The Fed has boosted rates by a modest quarter-point at every meeting they have held for the past year -- a total of eight increases so far.
Analysts believed virtually unanimously that the ninth increase would occur yesterday -- that the central bank will boost its target for the federal funds rate, the interest banks charge each other, from 3 percent to 3.25 percent. And many forecast more increases to come.
"We expect the Fed to continue to raise interest rates steadily into next year to contain inflation," said Richard DeKaser, chief economist at National City Corp in Cleveland and the chairman of the advisory committee of the American Bankers' Association.
DeKaser said that the economy was currently in the "Goldilocks zone -- not too hot and not too cold," giving the central bank the latitude to continue hiking rates at a gradual pace.
When the Fed started its rate increases a year ago, the funds rate was at a 46-year low of 1 percent and banks' prime lending rate, the benchmark for millions of consumer and business loans, stood at 4 percent, the lowest it had been since 1958. The prime rate, which usually moves in lockstep with Fed rate changes, was at 6 percent in advance of the Fed's meeting.
One reason analysts aren't looking for changes from the Fed is that Federal Reserve Chairman Alan Greenspan expressed satisfaction this month with how events are unfolding.
He told a congressional panel the economy was on "reasonably firm footing" with inflation under control. That assessment was borne out on Wednesday with a report that the overall economy, as measured by GDP, was growing at a solid annual rate of 3.8 percent in the first three months of this year, a significant upward revision from previous estimates.
"The economy is sticking to [the Fed's] script. Growth is sturdy, and inflation is right in the middle of their target range,'' said Mark Zandi, chief economist at Economy.com, an economic consulting firm.
While consumer prices had jumped sharply in March and April, they actually declined for the first time in 10 months in May, reflecting a big plunge in energy prices. But with oil prices setting a new record earlier this week above US$60 per barrel, economists said consumers should expect further gasoline price increases in the weeks ahead.
The bankers' group predicted that the Fed would keep pushing the funds rate up -- to between 4 percent and 4.25 percent by next spring. Some analysts think the central bank will get to that level more quickly. If it raises rates by a quarter-point at its four remaining 2005 meetings after this week, it would be at 4.25 percent by the end of this year.
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