As Expected, Fed Raises Rate One Quarter Point

The Federal Reserve’s interest-rate setting Federal Open Market Committee raised the federal funds rate one quarter point to 4 percent Tuesday, the twelfth consecutive increase since June 2004. In a statement announcing the increase, the Fed cited “robust underlying growth in productivity” and “economic activity that will likely be augmented by planned rebuilding in the hurricane affected areas,” as motivators for the change, the Associated Press reports. The statement added, “The cumulative rise in energy and other costs have the potential to add to the inflation pressures.”

Banks were expected to raise the prime rate a quarter-point to 7 percent.


Click Here
A total accounting solution for client data management! Allows you to offer “Software as a Service”! Clients have access to a complete, fully integrated accounting software suite, while you can review and report real time financial data. SinglePoint combines the power, flexibility and security of software from Cougar Mountain Accounting with the advanced technology of a dedicated application server from Applianz Technologies. Learn more!

Cougar Mountain Home Cougar Mountain Accounting
Sign up for a Web Demo Cougar Mountain Point of Sale
Request a Call Cougar Mountain FUND

Consumers are less optimistic than the Fed about the U.S. economy. The sharp increase in gasoline prices since Hurricane Katrina brought the Conference Board consumer sentiment index to a two-year low in September. Personal income growth of 1.7 percent for the month, adjusted for one-time insurance payouts related to the hurricanes, hovered around .5 percent, according to the Wall Street Journal.

Although energy costs have yet to affect core inflation, the core level is approaching 2 percent, Reuters reported, and statements by Federal Reserve governors in recent weeks suggest that additional increases in the federal funds rate may be needed.

“We are considerably closer to where policy needs to be than we were 16 months ago, but we are not yet at a point where we can stop and watch the economy evolve for a while,” Fed governor Donald Kohn said on October 19.

Tuesday’s statement from the Fed retained language it has been using, saying it believes future interest rates can occur "at a pace that is likely to be measured", the AP reports.

Some economists think the rate increases are nearing an end. Earlier concerns about possibility of an inverted rate curve where short term rates exceed long-term rates,– termed “a conundrum” by Alan Greenspan -- have eased. The 10-year treasury is now above 4.5 percent. The increase in the long-term rate affects mortgages and can bring about a gradual cooling in the housing market, according to a report in CNNMoney.

While the Federal Reserve has been increasing short-term rates, central banks in Europe and Japan have kept their rates steady, helping to strengthen the dollar and make dollar-denominated investment more attractive to foreign investors, CNNMoney reports.

You may like these other stories...

As the volume of account reconciliations continues to surge, most corporate accounting and finance departments in the United States and Canada are still using a labor-intensive process to make sure their accounts’...
The average starting salary for students graduating this year with a business major – including accounting – has declined slightly over the last year, according to the latest salary survey from the National...
No matter how much we may want to put them on hold, we all have projects at work we need to start, right? Well, according to a recent survey of human resources (HR) managers by Accountemps, the most productive day of the...

Already a member? log in here.

Upcoming CPE Webinars

Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.