Reply #111: Fed Boosts Key Rate a Quarter-Point

[ozymandius]

WASHINGTON - The Federal Reserve on Tuesday boosted a key interest rate for the 11th straight time and signaled that more rate hikes were likely even as the country recovers from the devastating effects of Hurricane Katrina.

The action pushed the Fed's target for the federal funds rate — the interest that banks charge each other_ to 3.75 percent. That's the highest level since the summer of 2001.

Some economists had believed that Katrina, the country's costliest natural disaster, might prompt the Fed to pause temporarily in its campaign to drive interest rates higher to keep inflation in check. But Federal Reserve Chairman Alan Greenspan and his colleagues said that Katrina's impact on the overall economy was likely to be short-lived.

In a brief statement explaining the action, the Fed said that all the problems from Katrina "will be a setback in the near term" for the economy. But the Fed said it did not believe that Katrina would pose a "more persistent threat" and therefore believed it needed to continue raising interest rates to guard against inflation.

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