Fed Overlooks Short-Term Indicators ToRaise Rates Again

Register now

WASHINGTON - (08/11/04) -- The Federal Reserve ignoredindicators of a short-term cooling of the economy and continued itsstrategy Tuesday aimed at slowing economic growth by liftingshort-term interest rates. The Fed added another 25 basis points(0.25%) to the target rate for overnight Fed Funds, just five weeksafter adding 25 bps, bringing the benchmark rate for short-termlending to 1.50%. Tun Wai, chief economist for NAFCU, said hebelieves the Fed raised the rate in the face of last week'sdisappointing jobs report because the Central Bank had alreadyindicated it planned to raise rates over the next few months and tochange course would have sent negative signs to the markets. BillHampel, chief economist for CUNA, agreed. "It would have signaled alack of confidence in the economy," Hampel told The Credit UnionJournal, adding that a 25 bps rise in rates is not expected to havea major impact. But, Hampel suggested that if there is weak jobgrowth over the next two months then the Fed may re-think its plansand hesitate in raising rates again when it meets in September toreview interest rates.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER