The Federal Reserve raised US interest rates tonight by a quarter percentage point for a fourth time this year, citing brightening job markets that likely mean more increases lie ahead.
The unanimous decision by the US central bank's policy-setting Federal Open Market Committee moves the benchmark federal funds rate - which affects credit costs throughout the economy - to 2% from 1.75%.
The Fed began to lift rates in June from a rock-bottom 1% and said in its post-meeting statement it expected to be able to keep on a 'measured' course of rate increases.
The latest rise follows Friday's Labour Department report that showed the creation of a surprisingly large 337,000 jobs last month. A further sign of labour market strength came this afternoon in the form of an unexpectedly small rise in new claims for unemployment benefits last week, implying fewer layoffs.
The long-awaited improvement in job prospects should keep incomes growing and bolster vital consumer spending.
'Output appears to be growing at a moderate pace despite the rise in energy prices, and labour market conditions have improved,' the Fed said in outlining its rate decision, which also boosted the largely symbolic discount rate to 3%.
'The committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity,' it added in language that mirrored its prior rate statement and gave no hint of a halt anytime soon.
Also as expected, the central bank said risks to the US economy were balanced between weaker growth and higher prices.
Before last Friday's robust employment report, many analysts thought the Fed might suspend its rate-rise cycle after November's meeting. But financial markets now are pricing in a much higher likelihood that borrowing costs will go up again at this year's closing policy session on December 14 and possibly into 2005.
The fed funds rate, the overnight lending rate between banks, still is low by historical standards. The Fed has indicated it wants to remove some of the exceptional degree of stimulus it applied by bringing the rate down to a 46-year low before the current round of hikes began.
Several promising recent indicators suggest the recovery has gained enough pace to cope with stiffer rates while a higher level would also offer the Fed a safety margin should it need to lower rates in future to spur activity.
Retail sales surged an unexpectedly large 1.5% in September, showing crucial consumer spending is still growing, while the nation's goods and services trade deficit narrowed in September on record exports.
The chief negative for the outlook is lofty oil prices, which topped $55 a barrel last month and hovered near $48 today and are sure to mean punishing price increases for consumers with the winter heating season just beginning.
