The Federal Reserve Board of Governors today raised short-term interest rates by 25 basis points to 3.75% and signaled future increases. The central bank recognized that the fallout from Hurricane Katrina will affect the economy in the short term but said the adverse effects "do not pose a more persistent threat" to the economy. As in previous months, the Fed indicated that short-term interest rates will likely be tightened at a "measured" pace.
Ellen Safir, founder and CEO of fixed-income manager New Century Advisors, said that the Federal Reserve is on track: "They're doing what they said they would do, and they have no interest in surprising the market." Around the time the hurricane swept up the Gulf Coast at the end of August, she noted, the Treasury yield curve steepened, but it has flattened again with interest rates on the 30-year Treasury bonds at 4.53%, and 4.06% for 5-year T-bonds.
