For the 12th consecutive time, the US Federal Reserve has increased its key interest rate by a quarter of a percentage point.
The decision was no surprise as most comments from central bank officials in the last month have hinted at another increase in the cost of borrowing.
It now stands at 4% as the Fed has continued its policy of raising rates at a “measured pace” while, by contrast, the European Central Bank’s rate has stuck at 2%, for fear of depressing the euro zone’s weak economy.Economists believe it is likely the Fed’s Open Market Committee will keep raising rates. That is based on the fact that US economic expansion remains on track, despite the inflation effects of higher energy costs and hurricanes.
Last week a US government report showed gross domestic product expanded at a 3.8% annual rate in the third quarter.That is a measure of the resilience of the world’s largest economy.Growth accelerated from 3.3% in the second quarter.The long time head of the Federal Reserve, Alan Greenspan, is coming to the end of his tenure and the White House has nominated Ben Bernanke to replace him.
The prevailing view among economists is that Greenspan will preside over two more quarter per cent rises before he steps down. The question remains – will Bernanke have to continue that trend?