Federal Reserve to Mull Interest Rate Hike

Federal Reserve Chairman Ben Bernanke (right) and his colleagues are poised to boost interest rates once again as they convene for a two-day session beginning Wednesday afternoon.

Concerned that high energy prices may spark a broader bout of inflation, the Federal Open Market Committee — which sets interest rate policy in the U.S. — will study the economy’s latest vital signs at the meeting. Even as the economy slows, inflation has been rising, putting the Fed in a tricky situation.

To make a long story short, policy makers want to push rates up enough to quell inflation, but not so much as to hurt the economy.

Earlier this month, Bernanke signaled that a key interest rate controlled by the Fed would go up again on Thursday. Most economists are predicting another quarter-point bump, upping to the federal funds rate to 5.25 percent, which would be the highest rate in more than five years.

Such an increase would mark the 17th consecutive increase of that size since the Fed began to tighten credit in June 2004. The board last met May 11, setting the rate at an even 5 percent. Some analysts have predicted that we may see a more drastic, half-point hike as a result of this week’s meeting.

The funds rate is the interest banks charge each other on overnight loans and the Federal Reserve’s main tool for influencing economic activity.

In response to an increases, most commercial banks and providers of Florida home loans will boost their prime lending rates. Over the course of the past year, U.S. mortgage rates have increased by about 1 percent. The impact of the Fed’s hikes are felt quickly in the housing market, but also in the rates of certain credit cards, home equity loans, and other financial products.