The Federal Open Market
Committee today voted to raise its target for the federal funds
rate by 25 basis points to 5-1/2 percent. In a related action, the
Board of Governors approved a 25 basis point increase in the
discount rate to 5 percent.
Although cost pressures appear
generally contained, risks to sustainable growth persist. Despite
tentative evidence of a slowing in certain interest-sensitive
sectors of the economy and of accelerating productivity, the
expansion of activity continues in excess of the economy's growth
potential. As a consequence, the pool of available workers willing
to take jobs has been drawn down further in recent months, a trend
that must eventually be contained if inflationary imbalances are
to remain in check and economic expansion continue.
Today's increase in the federal
funds rate, together with the policy actions in June and August
and the firming of conditions more generally in U.S. financial
markets over the course of the year, should markedly diminish the
risk of inflation going forward. As a consequence, the directive
the Federal Open Market Committee adopted is symmetrical with
regard to the outlook for policy over the near term.
In taking the discount rate
action, the Federal Reserve Board approved requests submitted by
the Boards of Directors of the Federal Reserve Banks of Boston,
Cleveland, Richmond and Kansas City. The discount rate is the rate
charged depository institutions when they borrow short-term
adjustment credit from their district Federal Reserve Banks.