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Last Updated: Tuesday, 31 January 2006, 20:35 GMT
Fed ups US interest rate to 4.5%
Alan Greenspan
Mr Greenspan has left economists with a lot to think about
The Federal Reserve has raised interest rates for the 14th time in a row, following the last meeting for retiring chairman Alan Greenspan.

Borrowing costs rose a quarter of a percentage point to 4.5% and the Fed signalled that its current round of increases may be drawing to a close.

Rates have increased from 1% over the past 19 months and are now at their highest level since April 2001.

Also, former board member Ben Bernanke was approved as the Fed's new chairman.

Change in tone

Importantly, the Fed changed the language of its interest rate statement saying that "some further policy firming may be needed" to keep price growth under control.

In previous statements the Fed had said it would take "measured" steps.

Chris Probyn, chief economist at State Street Global Advisors, said: "This is quite a clever statement."

Although recent economic data have been uneven, the expansion in economic activity appears solid
Federal Reserve

As well as untying Mr Bernanke's hands by suggesting that rate rises may halt, they also hint that underlying conditions have not improved so much that further increases are out of the question.

In fact, Mr Probyn and other analysts now say there is a good chance that borrowing costs will climb to 4.75% in March.

"I think there will be one more quarter-point hike and then the Fed will go on hold for the rest of the year," said economic consultant David Jones.

At the same time, the Fed was relatively upbeat about the state of the world's largest economy.

"Although recent economic data have been uneven, the expansion in economic activity appears solid," it said. "Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained."

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