Federal Reserve announces 13th interest rate increase

Associated Press

WASHINGTON -- There was just one missing word in the Federal Reserve's public announcement of its 13th rate increase, but it made a big difference.

In raising the federal funds rate to 4.25 percent on Tuesday, Chairman Alan Greenspan and his colleagues stopped using the word "accommodation," which in Fed-speak means that interest rates are kept low enough to boost economic growth.

Dropping "accommodation" from its policy statement suggests the Fed thinks it has raised rates so high that they are no longer stimulating economic activity.

Many private economists believe there won't be more than two more quarter-point moves, which would leave the funds rate at 4.75 percent.


After the Fed announcement, banks said they were pushing the prime rate, the benchmark for millions of business and consumer loans, including home equity lines of credit, up to a 41⁄2-year; high of 7.25 percent.

Many analysts expect the Fed will boost rates again on Jan. 31, which will be Greenspan's last meeting, and possibly on March 28, which will be the first time that Ben Bernanke will chair the Fed panel that sets interest rates.

But after that the central bank is expected to be on hold, perhaps for the rest of 2006.

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