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Heads up

Fed expected to increase interest rates Tuesday

By Times Staff Writer
Published October 31, 2005

Look for another quarter-point increase in short-term interest rates when the Federal Reserve Board's Open Market Committee meets Tuesday.

The Fed is trying to balance the risk of an economic slowdown in the wake of hurricanes Katrina, Rita and Wilma against the risk of inflation as high oil prices work their way through the economy. Right now, it's more worried about inflation.

When the Fed pushes rates up, it becomes more costly for companies and consumers to borrow money, slowing their spending, at least in theory.

There have been 11 rate increases since the Fed began tightening a quarter-point at a time back in June 2004. Along the way, the Federal Funds rate has risen from 1 percent to 3.75 percent.

When the Fed raised rates in September, it issued a statement saying more "measured" rate increases were likely in the coming months. Some analysts think the tightening cycle could end in December or January, which will be Alan Greenspan's last meeting as chairman.

Ben Bernanke, nominated to take Greenspan's place, has pledged to continue his vigilance against inflation.

The rate increases have been reflected in interest rates for short-term investments such as money market funds and bank certificates of deposits and in consumer loans. However, longer-term rates have remained relatively low, supporting the nation's real estate buying binge.

[Last modified October 28, 2005, 20:20:03]

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