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Last Updated: Tuesday, 13 December 2005, 21:55 GMT
Fed pushes US rates up to 4.25%
Fed chairman Alan Greenspan
Experts say Alan Greenspan's language has changed slightly
The US Federal Reserve has raised interest rates by a quarter-point to 4.25% but signalled that the current cycle of hikes may be nearing its end.

Most analysts had forecast the rise - the 13th consecutive increase - since the central bank wants to keep the lid on inflationary pressures.

In a statement the Fed said further monetary tightening would be needed.

But it also moderated its previous language, leading experts to suggest that rates may have nearly peaked.

Changed language

Rates have steadily risen over the past 18 months and now stand at their highest level in four and a half years.

Unlike in all previous statements, the Fed made no mention on Tuesday of the rate rises being "accommodative".

It has used the term to indicate that rates were still low enough to boost economic activity.

The Committee judges that some further measured policy firming is likely to be needed
US Federal Reserve

Experts said the slight change in language reflected the fact that Fed now thought rates had risen to a level where they were no longer fuelling increased economic activity.

The markets reacted positively to the Fed's statement, closing up 55 points to 10,823.72.

The Fed is still expected to increase rates to 4.50% next year.

However, it now seems less certain that rates will eventually rise to 4.75%, as some commentators have forecast.

Solid growth

In its assessment of the US economy, the Fed said economic growth was solid and core inflation remained relatively low.

However, it stressed that rising energy prices could lead to greater inflationary pressures.

Ben Bernanke, the next Fed chairman
Experts want to see how the Fed acts under Ben Bernanke's lead

"The committee judges that some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance," the Fed said in a statement.

Economic doves have argued that the Fed should not snuff out the steady recovery in the US economy by raising rates too quickly.

Analysts are watching the Fed particularly closely at the moment, since chairman Alan Greenspan is due to step down on 31 January after more than 18 years in the job.

Ben Bernanke, currently head of President George W Bush's Council of Economic Advisers and himself a former Fed governor, will take over.

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