US Federal Reserve Chairman Ben Bernanke, sticking with the Fed's playbook in his first meeting as chairman, boosted borrowing costs to a five-year high and hinted that an additional interest-rate increase could be in store.
Wrapping up a two-day meeting on Tuesday, Bernanke and his Fed colleagues struck a mostly positive tone, saying the economy "rebounded strongly" in the first three months of this year from an end-of-year lull. But Fed policymakers raised concerns about the potential for inflation to flare up.
In a unanimous decision, the Fed raised its key interest rate -- the federal funds rate -- by one-quarter of a percentage point, to 4.75 percent. This rate, which is the interest that banks charge each other on overnight loans, affects other rates charged to consumers and businesses.
Commercial banks reacted by lifting their prime lending rate -- for certain credit cards, home equity lines of credit and other loans -- by a corresponding amount, to 7.75 percent Both the prime rate and the funds rate are at their highest since the spring of 2001.
Bernanke presided over his first meeting of the Federal Open Market Committee, the group that sets interest rates, and continued the gradual rate-raising campaign set in motion by his predecessor, Alan Greenspan.
It was the 15th such increase since the Fed started tightening credit in June 2004.
Some economists and investors hoped Bernanke would have indicated that Tuesday's increase was the last; he did not.
"The committee judges that some further policy firming may be needed" to keep inflation and the economy on an even keel, policymakers said in a statement after their meeting. That matched the language issued after the previous Fed meeting on Jan. 31 -- Greenspan's last.
Attention now turns to the next meeting, on May 10.
"The statement suggests that we will see another rate hike in early May to ensure that the inflation genie stays in the bottle," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.
"The Fed under Mr Bernanke gave some fairly clear guidance that the Fed is not yet quite through raising rates. But we do believe there is a light at the end of the tunnel," Reaser said.
The Fed is holding the door open to an additional increase because of concerns about inflation picking up.
An improving job market and stepped up production "in combination with the elevated prices of energy and other commodities have the potential to add to inflation pressures," policymakers said.
Thus far, "the run-up in the prices of energy and other commodities appears to have had only a modest effect" on the prices of most goods and services other than energy and food, the Fed said.
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