The Federal Reserve Board of Governors today raised short-term interest rates by 25 basis points to 4% and signaled future increases. According to the central bank's statement, high energy prices and hurricane-related damage have "temporarily depressed output and employment," but planned rebuilding will only augment the economy's solid underlying growth. The Fed continued to signal that short-term interest rates will keep rising at a "measured" pace.
Colin Lundgren, head of institutional fixed income with RiverSource Investments, said the market's muted reaction to the latest Fed announcement reflects the widespread view that another two quarter-point hikes are likely through the end of January, when Alan Greenspan's term as Fed chairman comes to an end. Things will become harder to read in early 2006 when Ben Bernanke takes the helm, at a time when "inflation may be ticking higher, and economic growth may be ticking lower," said Mr. Lundgren.