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Another Rate Hike Expected at Fed Meeting

Preview / March 27 -- April 2

March 27, 2006|From Reuters

Federal Reserve Chairman Ben S. Bernanke leads his first policy meeting this week, one all but certain to end with another interest rate increase. It may also end with a suggestion that a 21-month run of credit tightening is almost over.

Analysts expect the Federal Open Market Committee, gathering in Washington today and Tuesday, to lift the benchmark federal funds rate to 4.75%. This would mark a 15th straight quarter-point hike since June 2004, when the central bank began a campaign to boost interest rates from an ultra-low 1% to keep inflation from flaring up.

Policymakers may also tweak their accompanying statement, due Tuesday, to signal a halt in rate hikes around midyear, some economists say.

"I think that we are very close to seeing the end," said Lynn Reaser, chief economist at Bank of America Capital Management in Boston.

But market players see more ahead. Financial futures prices show a better-than-even chance of a federal funds rate of 5% by May and give even shorter odds of rates at that level by July.

Governors Randall S. Kroszner and Kevin M. Warsh will join Bernanke for the first time, and Vice Chairman Roger W. Ferguson Jr. and Philadelphia Fed chief Anthony M. Santomero, who both plan to leave the Fed, will miss the meeting in keeping with tradition.

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