Fed raises interest rate to 1.75%

Federal Reserve policy-makers raised
the benchmark U.S. interest rate one-quarter-point to 1.75 percent
and restated a plan to carry out any further increases at a “measured” pace.

“With underlying inflation expected to be relatively low,
the committee believes that policy accommodation can be removed at
a pace that is likely to be measured,” members of the Fed’s rate-setting Open Market Committee said in a statement after their
meeting in Washington. “Nonetheless, the committee will respond
to changes in economic prospects as needed.”

The third increase this year and the possibility the FOMC
may keep raising rates suggests central bankers are confident that
the world’s largest economy will continue to expand. The vote to
raise the overnight bank lending rate was unanimous.

“This is not a time when the Fed wants to rock the boat,” said Lyle Gramley, a former Fed governor and now an economic
adviser to Schwab Soundview Capital Markets in Washington, in an
interview. “The game plan is working — the economy is picking
up, inflation is going down.”

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The U.S. economy hit what Chairman Alan Greenspan called a
“soft patch” in June and July amid rising energy costs.

“Output growth appears to have regained some traction,”
Tuesday’s FOMC statement said. “Labor market conditions have
improved modestly. Despite the rise in energy prices, inflation
and inflation expectations have eased in recent months.”

Bloomberg News