FED RAISES TARGET FOR FEDERAL FUNDS RATE ABOVE 2%

The Federal Reserve's Open Market Committee raised the target for the federal funds rate by 25 basis points to 2.25 percent on Tuesday. This is the fifth increase in six months, starting with a 25 basis point increase at the end of June, which was the first time the Fed had raised the rate in four years. The federal funds target rate is the interest rate charged by banks when they borrow funds "overnight" from each other.

"Output appears to be growing at a moderate pace despite the earlier rise in energy prices, and labor market conditions continue to improve gradually," the Fed said in a prepared statement. "Inflation and longer-term inflation expectations remain well contained."

While the federal funds rate has no direct impact on other rates, such as those for mortgages, it can alter them indirectly. Most economists are predicting mortgage rates will rise slowly throughout 2005.

From December 15, 2004 C.A.R. Newsline

Reprinted with permission of the CALIFORNIA ASSOCIATION OF REALTORS®

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