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Fed Keeps Nudging Up Key Rate

Quarter-Point Raise Is Third This Year

By Nell Henderson
Washington Post Staff Writer
Wednesday, September 22, 2004; Page E01

Federal Reserve officials, citing recent signs of economic improvement, raised a key short-term interest rate yesterday for a third time this year and signaled that they are likely to raise it again before year-end to keep inflation tame.

Economic growth "appears to have regained some traction, and labor market conditions have improved modestly," the officials said in a statement issued after their meeting.

The Federal Reserve's announcement that it would raise a key interest rate a quarter of a percentage point had little effect on markets. (Daniel Acker -- Bloomberg News)

On the Rise The federal funds rate has gone up three quarter of a percentage point since June, but is still low by historic levels.
Video: The Washington Post's Nell Henderson reports on the Federal Reserve's action.
_____On the Web_____
FOMC statement

_____Fed Rate Cuts_____
Graphic: Historical Changes in the Federal Funds Rate
In His Own Words: Greenspan comments and Fed actions since 2001.
Timeline: Interest rate changes since the recession of 1990.
Graphic: Greenspan's economy during boomtime.
Quiz: How Much Do You Know About the Fed?
Federal Reserve Special Report

The Fed's top policymakers agreed unanimously to raise their benchmark federal funds rate by a quarter-percentage point, to 1.75 percent from 1.5 percent.

With the economy firming and the funds rate still very low, Fed officials believe they can continue raising the rate gradually, or at a "measured" pace, the statement said.

"There is nothing here to suggest they are prepared to stop" raising the rate soon, said William C. Dudley, chief economist at Goldman Sachs & Co. "Their reading is that the economy is all right and therefore the process of [raising] the fed funds rate should continue."

The Fed dropped the prediction made in its previous statement, issued after its Aug. 10 meeting, that the economy then appeared "poised to resume a stronger pace of expansion going forward."

That language, coming during the heat of a presidential race that may turn in part on the state of the economy, was quickly seized on by President Bush's campaign and e-mailed to reporters.

The Bush campaign declined to comment on the Fed's action yesterday, as did that of Democratic candidate John F. Kerry.

Fed officials nonetheless generally say they expect the economy to pick up more steam and grow at a healthy pace in coming months, which bolsters their case for continuing to lift the benchmark rate at a "measured" pace of quarter- or half-percentage point steps spread out over many months.

The Fed's action and statement yesterday "gave a vote of confidence for the economy," Sung Won Sohn, chief economist with Wells Fargo Bank, said in an analysis.

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