Fed Continues Move To HigherRates

Register now

WASHINGTON - (02/03/05) -- The Federal Reserve hiked short-termrates another 25 basis points Wednesday, pushing the benchmarktarget for overnight Federal Funds to 2.5%. Credit union economistsexpect the Fed to hold to its higher-rate strategy, at least forthe short-term. Dwight Johnston, vice president of economicresearch for WesCorp FCU, said he expects the Fed to continueadding 25 basis points to the short-term target, at least in thenear future. "It's looking like a cinch that they'll get to 2.75%,"said Johnston, adding there is a broad consensus the Fed could takethe benchmark rate all the way up to 3.5% by the end of the year.In its statement, the Fed said it raised the short-term rate forthe sixth time in the past eight months to make sure astrengthening economy does not trigger higher inflation. So far therise in short-term rates has had little effect on credit uniondeposit rates, which have been stuck for the past year aroundall-time lows for regular shares (0.75%); share drafts (0.45%); andmoney market accounts (1%), according to DataTrac Corp., whichfollows 1,000 credit unions. But credit unions have raised CD ratesduring that time by between 25 bps and 35 bps.

For reprint and licensing requests for this article, click here.