Fed Continues Move To HigherRates

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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.

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