US interest rates went up last night for the 13th time in 18 months when the Federal Reserve lifted its benchmark federal funds rate by another quarter point to 4.25 per cent, its highest since April, 2001.
As widely expected, the US central bank's ratesetting Federal Open Market Committee voted unanimously. But the Fed also stopped describing its policy as "accommodative"
- indicating that its rate has now reached a more normal level from a low of one per cent in mid-2003.
But the Fed also warned that it will probably need to push rates higher to counter inflation, suggesting there is at least one more quarter- point increase to come.
The Fed was expected to tone down its language to provide more latitude for its chairman Alan Greenspan's designated successor, White House adviser Ben Bernanke.
He needs a final Senate vote of approval to take the reins on February 1 - the day after the last ratesetting meeting of Mr Greenspan's 18- year tenure.
For the most part, the US economy has shown signs of vigour despite this year's succession of latesummer hurricanes.
It grew at a brisk 4.3 per cent a year in the third quarter. But there are signs that the roaring US housing market is finally cooling, which could damp down consumer spending. A report yesterday showed that retail sales rising only
0.3 per cent last month.
The Fed could view this as a reflection of hurricane-driven energy prices that it does not want to spill into broader inflation.
So far, this has not happened. Consumer prices have risen 4.3 per cent year on year, but by only 2.1 per cent leaving out volatile food and energy costs.
" Core inflation has stayed relatively low in recent months and longer- term inflation expectations remain contained. Nevertheless, possible increases in resource utilisation as well as elevated energy prices have the potential to add to inflation pressures," the Fed said.