It'll Keep Going Up!!

Like I said about a month ago, the interest rate will keep going up, as oil price and inflation keeps soaring and a recession is about to hit America.

With government spending being tied up in Katrina reliefs and possibly other reliefs after Hurricance Rita (another catagory 4 storm), there will be even less room for the U.S. Government to move when the recession hits.

All I can say is "sit tight and get ready for the rough ride"!!
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Fed raises rate to 3.75%

By TAVIA GRANT

Tuesday, September 20, 2005 Posted at 3:01 PM EDT

Globe and Mail Update

The Federal Open Market Committee raised its key lending rate for the 11th straight time, to 3.75 per cent from 3.5 per cent, suggesting the Fed is more concerned about rising inflation in the U.S. than any economic slowdown stemming from hurricane Katrina.

In one of the most widely debated outcomes in years, the Fed said the economy was expanding at a healthy pace before the hurricane hit. While the Fed suggested Katrina will hurt the U.S. economy and add to energy price volatility in the short term, it kept the word “measured” in its description of future rate hikes.

Many economists had expected the Fed to raise rates, but signal a pause after today.

“There's absolutely no hint in this statement that the Fed is gearing up to move to the sidelines,” said Marc Lévesque, chief strategist at TD Securities Inc. “Unless energy prices soar or the U.S. economy runs into a really serious rough patch, it's a good bet that at the next FOMC meeting they're going to hike another 25 (basis points).”

The decision comes just three weeks after hurricane Katrina hit, with many economic reports not yet reflecting the effect of the devastation. Katrina could cost as much as $200-billion (U.S.) in federal spending and has prompted economists to cut their third-quarter growth forecasts on expectations higher gasoline prices will sink consumer spending.

But the Fed indicated Tuesday that those effects could be fleeting.

“While these unfortunate developments have increased uncertainty about near-term economic performance, it is the committee's view that they do not pose a more persistent threat,” the FOMC said in a statement. “Rather, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Higher energy and other costs have the potential to add to inflation pressures.”

Still, core inflation has been muted in recent months and longer-term inflation expectations remain “contained,” it said, adding that it will continue to raise rates “at a pace that is likely to be measured.”

As of Monday, 86 of 107 economists surveyed by Bloomberg News had expected the Fed to raise its benchmark rate today, while 21 expected it to stay pat at 3.5 per cent. Before the hurricane, all of the economists surveyed expected an increase, Bloomberg said.

Unlike previous announcements over the past year, today's decision wasn't unanimous. Nine committee members favoured a rate hike, while Mark Olson preferred no change in the federal funds rate target.

The Canadian dollar was little changed after the announcement, hovering at a 13-year high of 85.55 cents. The Dow Jones industrial average, meantime, fell on expectations higher borrowing costs could crimp earnings. U.S. Treasuries also declined.

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