Fed Stays Vague on Future Rate Increases

The Federal Reserve decides Wednesday to raise its key short-term interest rate to 5 percent. That much was expected. But Fed remained vague about the likelihood of future rate increases. "Some" increase in rates "may yet be needed to address inflation risks," the Fed said. Robert Siegel talks with Jack Speer.

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MICHELE NORRIS, Host:

Wall Street didn't do any cheering about today's interest rate move by the Federal Reserve. The Fed raised its key short-term interest rate by a quarter point to 5%. That much we can take on face value. After that, it's all about whether the Fed indicated or signaled or perhaps suggested that it might now be ready to take a break and leave rates alone. Many fed watchers say that's exactly what the Fed did. Others read the Fed's statement differently.

NPR's Jack Speer is with us to explain all this. Jack, help us sort all this out. More rate hikes or a hiatus. What did the Fed actually say?

JACK SPEER: Yeah, right. Take your pick, Michele.

I mean, the Fed basically left the door open wide enough to drive a truck through here today. I mean, what Fed policymakers said at the conclusion of this meeting here in Washington today in essence was that, you know, if there's a need for further interest rate hikes in the months ahead, we're ready to do that. If the data tells us otherwise, then we're ready to back off. But you can sort of take your pick here.

Wall Street and the financial markets obviously were really, really hoping they would get a much clearer, more definitive statement from the Fed, something along the lines of, you know, we're more likely to pause or a pause is expected. They didn't hear anything like that today and, as you mentioned, Wall Street was basically flat.

NORRIS: So they're keeping their options open, and they've raised the rate by a quarter point. Consumers will immediately see some of that, right?

SPEER: Oh, absolutely. I mean, the big banks were all raising their prime lending rates immediately after the Fed's announcement. The prime rate, in fact, went up today to 8%. That's its highest level in quite awhile and of course that raises borrowing costs for lots of, millions of consumers. People who have credit cards tied to the prime rate. Home equity lines will start ticking higher.

Lots of people with adjustable rate mortgages are going to be seeing the increase of the rate hikes a little further out. And a lot of this is already underway and will continue as a result of today's rate hike.

NORRIS: Now this is the 16th straight rate hike, but only the second since the new Fed chairman took over. How do people think he's doing so far and is it hard to read this, because he's so new that they can't quite sort of interpret his move?

SPEER: Well I think people are giving Ben Bernanke, and he's the new Fed chairman, as you mentioned, a fair bit of slack at the moment. I mean, this is the second rate hike that's occurred under Ben Bernanke and as you mentioned, it's the 16th straight rate hike we've had from the Federal Reserve.

You know, I think people generally give him high marks with a few caveats here. I think there have been a couple of stumbles that have been somewhat publicized, some miscommunications perhaps with the public and the markets. People maybe were looking for slightly clearer signals from Mr. Bernanke. You know, Mr. Greenspan was known for being somewhat obtuse at times and I think people thought maybe Ben Bernanke would be a little clearer, communicate a little bit better.

As I mentioned, two weeks ago before the Congress, he had some remarks that indicated the Fed might pause in rate increases even if there were some signs of inflation out there. And he sort of came back and clarified his comments a little bit after that, saying that a pause doesn't necessarily mean a halt. In other words, the Fed could decide to pause and then raise interest rates later on down the road if conditions warranted it.

But basically, I think people are giving Mr. Bernanke fairly high marks and kind of taking a wait-and-see approach to his tenure at the Fed.

NORRIS: Jack, just quickly before we let you go, I'd like to ask you about gold. It's going for more than $700 an ounce now, the highest level in 25 years. What's going on?

SPEER: Yeah, gold closed today in New York at $703 an ounce. Precious metal prices have been rallying and really don't seem to be showing any signs of slowing down here. It's in response to a weaker dollar, global uncertainties and inflation worries. And you know it's a hard thing to figure out with the stock market poised to hit a new high, what's behind this rally in gold, Michele.

NORRIS: Thank you, Jack.

SPEER: You're welcome.

NORRIS: NPR's Jack Speer.

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