Wednesday, November 17, 1999 Published at 14:50 GMT
Business: The Economy
US Fed raises rates
The US Federal Reserve Open Market Committee (FOMC) has voted to increase interest rates by 0.25% to 5.5%, adding to the likelihood that interest rates will continue to rise around the world.
But the move means that interest rates on mortgages and company loans are likely to go up.
"I think raising rates should take a little bit of wind away from the back of the stock market, and may make things a little sloppier over next few weeks," said Harvey Hirschhorn of Stein Roe & Farnham.
The Fed said it took the action because the economic growth was still too strong, risking inflation.
"Although cost pressures appear generally contained, risks to sustainable growth persist.
Managing to slow down the US economy without inducing a recession could be crucial for the future of the world economy.
Earlier, the Organisation for Economic Cooperation and Development said it expected US interest rates to reach 6.5% and for US growth to slow substantially over the next two years.
Last year the Fed cut rates three times to help prevent a global financial meltdown. Its latest move means that it has now reversed all those reductions.
Many analysts are convinced that this will be the last interest rate hike for some time.
"My feeling is that the Fed perhaps is finished hiking rates into the foreseeable future" said John Lonski of Moody's Investors Services.
Meanwhile, the US economy continues to expand rapidly with little signs of inflationary pressure.
Industrial production rose by 0.7% in October, its strongest rate for eight months, rebounding from September's hurricane induced slowdown.
And data released last week showed that the productivity of US workers rose sharply in the third quarter of the year, at a rate of more than 4%, keeping growth in labour costs in check.
Rising productivity can help keep inflation in check as it allows firms to increase output without having to incur higher labour costs.
With productivity high, labour costs are rising very slowly, just 0.6% during the quarter, the lowest rate since a 0.5% rise in the fourth quarter of 1998.
However, the Fed is still worried that the shrinking number of available workers will eventually force up labour costs and inflation.
It warned that expansion could be jeopardised if growth continued to eclipse increases in both productivity and the pool of available workers.
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