WASHINGTON (AFP) - US Federal Reserve policymakers, heartened by a burst in new jobs in October, raised key short-term interest rates and hinted at further small increases ahead.
The key federal funds target rate, which commercial banks charge each other overnight, rose to 2.0 percent from 1.75 percent, by unanimous vote of the Federal Open Market Committee.
Interest rate rises can continue at a "measured pace," they said, barely budging financial markets, which had overwhelmingly anticipated the decision. Wall Street`s blue-chip Dow Jones index eased 0.01 percent.
"The committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity," the committee said in a statement.
"Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions have improved. Inflation and longer-term inflation expectations remain well contained."
Risks to economic growth and inflation seemed balanced, the Federal Reserve policymakers said, vowing however, to respond "as needed" to keep prices stable as economic prospects dictate.
It was the fourth rate rise since June 30, when Federal Reserve chairman Alan Greenspan and his colleagues edged up the key rate from a 1958 low of 1.0 percent.
Economists and traders universally expected the latest move, after a government report soothed economic concerns, showing a seven-month record of 337,000 extra jobs were created in October.
The debate has switched to whether Greenspan and his colleagues will do so again at a meeting December 14.
"As long as the economy remains on track towards full employment, the Fed will continue to take back the emergency level of rinterst rates undertaken in recent years," said BMO Financial Group economist Sal Guatieri.
He predicted further interest rate increases at the next two FOMC meetings -- December 14 and February 1-2.
"I think the Federal Reserve is really on course, hiking interest rates slowly and gradually," agreed Wells Fargo Bank chief US economist Sung Won Sohn.
"The economy is doing a bit better right now, to be sure, but there are still some concerns about geopolitics, employment and the price of oil," he added.
"So I think the Federal Reserve does not want to rock the boat and is using a gradual, slow approach in raising the interest rate."
With inflationary pressures tame, there was no need for the central bank to speed up interest-rate increases, he said.
In a related action, the central bank also raised the discount rate -- at which the central bank can lend to commercial banks -- to 3.0 percent from 2.75 percent.
That decision was taken at the request of most of the 12 Federal Reserve Bank presidents, but not the leaders of banks in Dallas and San Francisco, Guatieri noted.
"That might suggest a couple of the banks did not strongly see the need for a raise in interest rates," he said, with productivity gains likely to keep inflation tame.
It also may indicate a shift in sentiment towards a pause in the cycle of rising interest rates "at some point," Guatieri said.
11/10/2004 - 22:44 GMT - AFP