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Fed Raises Interest Rates

INTEREST RATES UP: 2004/6/30 Up arrow with hands counting money
The the Federal Reserve on Tuesday boosted a key interest rate for a 10th time and signaled that more rate hikes were likely to prevent a rebounding economy from stoking unwanted inflation.

The action pushed the Fed's target for the federal funds rate up to 3.5 percent, the highest level in almost four years.

The move was certain to be followed by an announcement by commercial banks that they were increasing their prime rate, the benchmark for millions of consumer and business loans, by a similar quarter-point. That would put the prime at 6.5 percent, its highest point in four years.

The Fed has raised interest rates at every one of its meetings going back to June 2004 when the funds rate, the interest that banks charge each other, stood at a 46-year low of 1 percent.

In its latest announcement, the Fed kept language pledging to move rates up "at a pace that is likely to be measured." That phrase is interpreted by financial markets as signaling continued quarter-point moves.

Tuesday's announcement had been widely anticipated after Federal Reserve Chairman Alan Greenspan told Congress last month that further rate increases were needed to make sure solid economic growth did not trigger inflation pressures.

But as CBS' Meg Oliver reports, the announcement is not expected to slow the U.S. housing market, which soared to an all-time high in June.

Many analysts believe the Fed will keep raising interest rates at its final three meetings of the year, in September, November and December, leaving the funds rate at 4.25 percent at year's end.

The central bank, acting at a previously scheduled meeting, acted as President Bush talked economic policy at his Texas ranch with his domestic policy advisers.