FOMC, Fed announce 25-point rate increases

The Federal Open Market Committee Aug. 24 voted to raise its target for the federal funds rate by 25 basis points to 5.25 percent. In a related action, the Federal Reserve Board of Governors approved a 25-basis-point increase in the discount rate to 4.75 percent, according to a press release from the Fed.

With financial markets functioning more normally, persistent strength in domestic demand, foreign economies firming and labor markets remaining tight, the degree of monetary ease required to address the global-financial-market turmoil of last fall is no longer consistent with sustained, noninflationary economic expansion, the Fed stated.

The Aug. 24 increase in the federal funds rate, together with the policy action in June and the general firming of U.S. Financial conditions in recent months, should markedly diminish the risk of rising inflation going forward. As a consequence, the directive the Federal Open Market Committee adopted is symmetrical with regard to the outlook for policy over the near term, the Fed stated.

In taking the discount rate action, the Federal Reserve Board approved requests submitted by the boards of directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

The discount rate is the interest rate that is charged depository institutions when they borrow from their district Federal Reserve Banks.