In somewhat of a surprise move, the Federal Reserve decided to raise interest rates another 0.25%.
From a summary issued by the Congressional Joint Economic Committee:
The Fed views risks of substantial increases or decreases in inflation over the next few quarters as roughly balanced. Risks of substantial increases or decreases in economic growth are also seen as balanced.
The Fed mentioned that dislocation of economic activity and higher energy prices that resulted from Hurricane Katrina will weigh on spending, production and employment in the near term. The Fed believes, however, that the economic developments stemming from Katrina will be transitory and “do not pose a more persistent threat.”
Rates have been steadily increasing from 1% in June 2004 to the current rate of 3.75%. Such rate increases will impact small businesses that have operating lines of credit, which most often have fully variable interest rates.