Transcripts

The Federal Reserve Raises Rates Amid Katrina Concerns

SUSIE GHARIB: The Federal Reserve raised interest rates again today on concern that hurricane Katrina could spark a rise in inflation. The central bank boosted its key Federal funds rate by a 1/4 of a percent to 3.75 percent. It`s the 11th consecutive hike by the Fed. Some economists had expected policy makers to pause in the wake of Katrina, but the Fed said in a policy statement, while these unfortunate developments have increased uncertainty about near-term economic performance, they do not pose a more persistent threat. For the first time since the Fed began raising rates, the decision was not unanimous. One central bank official voted to hold rates steady. Economists, including Bear Stearns John Ryding expects the Fed to keep raising rates for the foreseeable future.

JOHN RYDING, BEAR STEARNS: The Fed repeats (INAUDIBLE) accommodative, repeats that accommodation can likely be moved at a pace that is measured or gradual. Those aren`t the words you tend to use if you think you`re going to go up one more rate to go, so we will hold to our views that the funds rate will be at 4 1/4 percent at the end of the year and that 5 percent by the middle of next year.

GHARIB: Oil prices fell sharply today after OPEC offered to sell its remaining spare capacity, two million barrels a day. The news sent prices tumbling more than 3 percent, but they rebounded as traders worried that hurricane Rita might threaten oil operations in the Gulf of Mexico. In New York trading, crude futures for October finally closed down $1.16 to $66.23 a barrel. But analysts expect prices to move back up.