Federal Reserve policymakers raised the main U.S. interest rate to 4.25 percent, the 13th rate boost in a row, and signaled they soon may end their run of increases.
The central bank stopped saying there is “accommodation” in its policy, a sign that members consider rates high enough that they’re no longer spurring economic growth.
The Fed also qualified its pledge to raise rates at a “measured” pace, a phrase it has used in every statement for 18 months.
“Some further measured policy firming is likely to be needed” to ensure the economy keeps growing without stoking inflation, the rate-setting Federal Open Market Committee said in a statement after meeting Tuesday in Washington. “Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained.”
The committee’s unanimous decision lifted the overnight bank lending rate by a quarter of a percentage point to the highest level since May 2001.
With Tuesday’s language change, Chairman Alan Green span is revising the Fed’s rate outlook less than two months before he retires and is leaving his successor, White House adviser Ben Bernanke, with a freer hand to set policy.
“It’s a little too early to make the assessment that they are done,” said Richard Volpe, head of government bond trading at Bear Stearns & Co. in New York, in an interview. “We’re still looking at a hike Jan. 31, and our feeling as a firm is that we’re also going to see a hike at the March 28 meeting.”
The Fed is raising rates to keep energy costs, which rose after hurricanes Katrina and Rita, from spilling into the price of other goods and services.
Economists said that by dropping “accommodation,” central bankers are suggesting they’re at or near a neutral rate that neither spurs nor restrains growth.
“Despite elevated energy prices and hurricane-related disruptions, the expansion in economic activity appeared solid,” the Fed statement said. “Possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.”
Tuesday’s announcement was a “much more cogent and clearer statement,” said Lynn Reaser, chief economist of the Investment Strategies Group at Bank of America in Boston.
No Fed members have said publicly they’re concerned about raising rates too much.
