Fed made right decision to raise interest rates

Thursday, July 01, 2004

The Federal Reserve raised interest rates for the first time in four years Wednesday.

This is a positive sign that the economy is recovering and that the job market is improving.

The federal funds rate was 1 percent, a 46-year low. The Fed raised it to 1.25 percent.

The move is good news for the Bush administration, whose tax plan can be credited in some part for the economic recovery. While there are limits to what any administration can do to influence direction of the economy, the American public tends blame or give credit based on what happens on each president’s watch.

While Americans have enjoyed low interest rates especially on mortgages and consumer loans, it is essential that we raise these rates when the economy strengthens in order to keep inflation in check.

At the same time, the brisk business in home refinancing will likely falter as interest rates rise.

Businesses are also finding it easier to raise prices now.

For the first five months of this year, consumer prices rose at an annual rate of 5.1 percent, exceeding the 1.9 percent increase for all of last year.

This suggests that the Fed’s action is timely.

A one-quarter point increase won’t deter economic recovery, but it will put the Fed on a course of higher borrowing costs, which could keep inflation under control.

Wednesday’s increase signals that it is no longer necessary to keep rates low to encourage the economy to grow.

This is definitely a sign that our economy is on the upswing.

The numbers prove just that.






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