The Federal Reserve made it five-for-five Tuesday, raising its benchmark short-term interest rate to 2.25% from 2%, the fifth quarter-point increase in as many meetings since June.
Expect more of the same in 2005: Policymakers' post-meeting statement indicated that they are likely to continue tightening credit at this year's pace.
Wall Street had been all but certain of another rate hike, after data in recent weeks that have mostly pointed to a growing U.S. economy. Stocks rallied modestly Tuesday and long-term bond yields eased.
In September and October, some Fed watchers predicted that the central bank would keep its key rate steady at this month's meeting to get a better sense of the economy's trend.
But "there's nothing really out there suggesting that the Fed should pause," said Peter Hooper, economist at Deutsche Bank Securities in New York.
The nation added a net 112,000 jobs in November, the Labor Department said Dec. 3. That was below what many analysts expected, but it wasn't weak enough to cause the Fed concern about the economy, Hooper said.
Although job growth was disappointing last month, analysts have been impressed by gains in retail sales, industrial activity and business confidence. Also, the steep drop in oil prices since late October has bolstered optimism about consumer spending in 2005.
Using language almost identical to what was in its Nov. 10 meeting statement, the central bank Tuesday said the economy's "output appears to be growing at a moderate pace despite the earlier rise in energy prices," and declared that "labor market conditions continue to improve gradually."
As in its previous four statements, the Fed signaled that it expected to continue to raise short-term rates as the economy expands, and "at a pace that is likely to be measured" -- which most analysts say will mean a succession of quarter-point increases in the benchmark federal funds rate, the overnight loan rate among banks.
The immediate effect of Tuesday's rate hike will be to raise other short-term borrowing and savings rates. Many major banks quickly raised their prime lending rates by a quarter point, to 5.25%. Rates on money market funds and bank certificates of deposit also will continue to rise, analysts say.
But long-term interest rates, such as on Treasury bonds and mortgages, are set by the marketplace rather than the Fed. Those rates have declined since the Fed's Nov. 10 meeting, in part reflecting that investors believe inflation won't rise significantly, said Steven Wieting, economist at Citigroup Global Markets in New York.
