The Federal Reserve boosted short-term rates again last week, and signaled more rate hikes are likely in the wake of Hurricane Katrina. It raised the target rate for overnight Fed Funds by 25 basis points, to 3.75%, the 11th raise of 25 BPs over the past 18 months.
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.
The Fed's rate increase spurred several large banks to immediately raise their prime rate by 25 BPs, too. That pushed the prime to 6.75%, its highest point in more than four years.
