Interest rate rises to 4.75 percent

The Federal Open Market Committee decided Tuesday to raise its target for the federal funds rate by 25 basis points to 4.75 percent.

The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors, the Fed said. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace, the Fed reported.

As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.

The committee said some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.

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