Fed Raises Short-Term and Discount Interest Rates a Quarter Percent

Predictions that the central bank would raise rates proved true as the U.S. Federal Reserve announced on Tuesday quarter-point increases in both the federal-funds target rate and the discount rate. Spokespersons for the Fed say the bank is maintaining its "neutral" bias toward any future rate changes.

Also raised were the federal-funds target rate - or the rate at which banks lend to each other overnight - to 5.25 percent from 5 percent. In a surprise move, it also raised the discount rate, or the rate at which the Fed lends to banks, to 4.75 percent from 4.5 percent.

The increase in the federal-funds rate was the second in two months for the Fed, which is trying to keep inflation at bay in the expanding U.S. economy.

The outlook for the three remaining scheduled Fed meetings in 1999 is clouded. Chairman Alan Greenspan said the central bank is prepared to "act promptly and forcefully" to cool the U.S. economy should it show signs of overheating.

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