The US Federal Reserve boosted a key short-term interest rate by one-quarter percentage point last night, the third increase this year. It is part of a gradual process to wean the US off very low rates that are no longer viewed as necessary to keep the economy afloat.
Fed chairman Alan Greenspan and his Federal Open Market Committee colleagues - the group that sets interest-rate policy - increased the target for the federal funds rate to 1.75
per cent , from 1.50 per cent.
The funds rate is the interest banks charge each other on overnight loans and is the Fed’s
primary tool for influencing economic activity.
As a result of the Fed’s decision to push up the funds rate, commercial banks were expected to increase by a corresponding amount their prime lending rate for many short-term consumer and business loans to 4.75 per cent, from 4.50 per cent.
Fed policymakers stuck to their view that future rate increase would be gradual.
