Fed Hikes Rates 25 Basis Points; Sees Continued Inflation Risks

Surprising no one, the Federal Open Market Committee raised its target for the fed funds rate to 6% from 5.75%.

Also as expected, the FOMC indicated in a statement that it continues to feel that the risk of accelerating inflation is greater than the risk that economic growth will slow. This is an indication that the committee is likely to raise the fed funds rate further in the coming months.

Way Back When Changes in market indicators since the Fed began hiking
Instrument	Close 6/29/99	Today 3/21/00	Change	Percent Change
Fed Funds Rate	4.75%	6.00%	+1.25	N/A
3-Month LIBOR	5.349	6.241	+0.89	N/A
DJIA	10,791.29	10,797.82	+6.53	+0.1%
S&P 500	1351.45	1466.77	+115.32	+8.5%
Nasdaq	2642.11	4575.66	+1933.55	+73.2%
Wilshire 5000	12,584.00	14,076.56	+1492.56	+11.9%
Commodites/Currencies
CRB Index	189.37	213.57	+24.2	+12.8%
Crude Oil Futures	$18.44	$28.45	+$10.01	+54.3%
Gold	$262	$290.50	+$28.50	+10.9%
Dollar/Yen	121	106.915	-14.1	-11.6%
Treasury Yields
1-year bill	5.160%	6.203%	+1.04	N/A
2-year note	5.680%	6.488%	+0.81	N/A
5-year note	5.820%	6.440%	+0.62	N/A
10-year note	5.930%	6.166%	+0.24	N/A
30-year bond	6.070%	5.988%	-0.08	N/A
Source: Aubrey G. Lanston

The interest-rate hike, which all 30 of Wall Street's primary dealers and almost every Wall Street forecaster expected, is the Fed's fifth in the last nine months. It raises the fed funds rate to its highest level since July 1995.

The Fed's rate-hiking mission is intended to slow the economy's growth rate to a pace the Fed thinks is sustainable -- something on the order of 3.5% to 3.75%. During the fourth quarter, GDP grew at a 6.9% pace, according to the government's most recent estimate.

The Fed also hiked the discount rate by 25 basis points, to 5.50% to 5.25%. The discount rate is the rate the Fed charges banks to borrow from its discount window; the fed funds rate is the rate at which banks lend to one another overnight.

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