2004-6-17
This is Bob Doughty with the VOA Special English Economics
Report.
Financial markets are preparing for something that has not
happened since May of two-thousand. The United States central bank,
the Federal Reserve, is expected to raise interest rates at the end
of this month.
Interest is the cost to borrow money. As the cost increases,
people generally borrow and spend less. Less spending means less
demand. And that generally keeps prices from rising. So economists
say interest rates are an important tool to fight inflation.
Last week, Federal Reserve Chairman Alan Greenspan said the
central bank "will do what is required" to keep prices under
control. This is known as price stability.
Later, the president of the Federal Reserve Bank of Cleveland
said current interest rates are too low. Sandra Pianalto said
inflation pressures appear reasonably under control right now. But
she added that she is concerned that they could increase.
Another Federal Reserve Bank president warned that recent price
increases must be watched closely to see how much is temporary. Jack
Guynn in Atlanta said Federal Reserve policymakers need to react to
whatever happens.
The policymakers said in May that rate increases are likely to
come at a "measured" speed. But Mister Greenspan says they are
prepared to act more quickly if needed.
The Federal Reserve lends money to other banks at a rate set by
the system's Open Market Committee. The federal funds rate is
currently one percent, the lowest since nineteen-fifty-eight. This
is not the rate for individual borrowers, however. Banks borrow from
the Federal Reserve so they can then lend money to businesses,
individuals and each other.
Low interest rates have led to record numbers of home sales in
recent years. Now, interest rates for home loans are increasing.
Economists say they are concerned that growth in jobs, high
energy prices and increased demand in the economy will push prices
up. The government says prices rose at a yearly rate of
four-point-four percent in the first four months of this year. For
all of last year, the inflation rate was less than two percent.
The Federal Open Market Committee will meet in Washington for two
days, starting June twenty-ninth. The committee is expected to raise
the federal funds rate from one percent to one-point-two-five
percent.
This VOA Special English Economics Report was written by Mario
Ritter. This is Bob Doughty.