Fed Makes It 12 Straight

It raises fed funds to 4% and vows more 'measured' action.
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Updated from 2:21 p.m. EST

The

Federal Reserve

raised official interest rates by a quarter-point for the 12th consecutive time Tuesday and said it remains committed to its "measured" battle against inflation.

Policymakers, who have now boosted fed funds by 3 percentage points since June 2003, said output and employment remain temporarily depressed by the impact of hurricanes Katrina and Rita.

"However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas," the Fed said. "The cumulative rise in energy and other costs have the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained."

The Fed, voting unanimously, left the risk-assessment paragraph of its policy statement completely intact, maintaining its vowed "measured" tightening that the market reads as a promise for more quarter-point hikes.

"The committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability," it said.

Stocks firmed on the news, with the

Dow

going from 10,408 to about 10,433 in the immediate aftermath. The 10-year Treasury bond's yield went from 4.57% to 4.55%.

Since the Fed's last meeting, members have seen a series of economic reports depicting an uneven recovery from the storms amid rising energy prices. The beige book survey of regional banks released Oct. 19 found steady growth in most areas of the country accompanied by higher wages, while another report last Thursday showed a 2.1% decline in durable goods orders.

Last week's report on third-quarter gross domestic product showed economic growth of 3.8% in the third quarter, better than expected. On Monday,

Wal-Mart

(WMT) - Get Report

said October sales were trending above its forecast.

As for inflation, the producer price index reported Oct. 18 showed a 1.9% gain in September, seven-tenths of a percentage point more than expected and the largest monthly increase since 1990. On a year-over-year basis, the PPI is now up 6.9%, the most since November 1990, when it was 7.0%. Four days earlier, the government said the consumer price index for September rose 1.2%, its biggest jump in 15 years.

Tuesday's rate hike is the first major Fed announcement since President Bush nominated Ben Bernanke to succeed Alan Greenspan as chairman last week. The Federal Open Market Committee, which decides monetary policy, next meets Dec. 13. Greenspan's last meeting will be the day of his retirement, Jan. 31.