The Federal Reserve Board continued to tighten monetary policy in the week ended May 25, as the federal funds rate rose from 5.34 per cent to 5.45 per cent, according to statistics released yesterday by the central bank.
At thesame time, the money supply continued to expand from an average of $319.4 billion in the four weeks ended April 20 to $321.8 billion in the four weeks and ended May 18. In the week ended May 18, the money supply jumped from $320.8 billion to $322.2 billion. Over the last 13 weeks, the money supply - the sum of currency in circulation and checking accounts - has been growing at an annual rate of 9.7 per cent.
The Fed wants the money supply to grow by between 4.5 per cent and 6.5 per cent over the year, but in minutes released last week said it would tolerate growth at an annual rate between 6 and 10 per cent in April and May as consistent with its annual target.
The funds rate, which is the central bank's major money supply tool, is the interest banks charge each other for overnight loans of excess reserves. The Fed also raised its funds target from 4,75 per cent to 5.5 per cent in its April 19 meeting of the open market committee, which sets monetarypolicy for the country.