Federal Reserve bank boosts key interest rate to highest level in five years

The U.S. Federal Reserve on Wednesday raised a key interest rate to the highest level in more than five years but signalled that it may take a pause to assess the impact of its string of rate hikes.

Photo: Federal Reserve bank boosts key interest rate to highest level in five years

The Fed boosted its target for the federal funds rate to 5 percent. The funds rate, the interest that banks charge each other, stood at a 46-year low of 1 percent when the central bank began raising rates in June 2004 to keep inflation under control.

In its statement announcing the decision, U.S. central bank policy-makers indicated they may take at least a brief pause in hiking rates. It said the "extent and timing" of further rate increases would depend on future economic data.

The Fed's rate hikes have raised the borrowing costs for millions of Americans on everything from adjustable rate home mortgages to auto loans. Commercial banks were expected to quickly match the Fed action by boosting the prime lending rate to a five-year high of 8 percent.

Fed Chairman Ben Bernanke had raised expectations that the central bank was getting ready to pause when he said in congressional testimony on April 27 that the central bank might take a break for "one or more meetings."

Bernanke, who succeeded the legendary Alan Greenspan as Fed chairman on Feb. 1, said a pause would give the central bank time to assess the impact its long string of rate increases was having on the economy.

In the statement announced Wednesday's rate hike, the Fed said that some further rate hikes "may yet be needed." That marked a slight modification from the March statement when it stated that further rate hikes "may be needed."

It added another phrase in the latest statement saying that "the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information," reports AP.

O.Ch.