On Wall Street, the Dow Jones industrials gained 2.88 points, while other
stock indicators lost ground.
Fed policymakers offered a largely positive assessment of the economic
climate, although they continued to express concern about the potential for
inflation to flare up.
Further moves "may yet be needed to address inflation risks," they said. Any
such action, they added, "will depend importantly on the evolution of the
economic outlook as implied by incoming information."
Economists said this language, more detailed than a previous policy statement
issued on March 28 gave the Fed more flexibility in terms of future
interest-rate decisions.
If the economy doesn't slow to a more sustainable pace as the Federal Reserve
expects and high energy prices start feeding into the prices of lots of other
goods and service, then the Fed could opt to boost rates at its next meeting on
June 28-29 or a some other point.
However, if economic growth does slow, something that could reduce inflation
pressures, then the Fed might pause in its rate raising at the June meeting or
perhaps later this summer.
Many economists believe the Fed will take a break in its rate-raising
campaign this year although they have mixed opinions on when that will happen.
Some believe Wednesday's increase will be the last for a while. Others predict
the funds rate will rise to 5.25 percent in June and then the Fed will move to
the sidelines. A few believe the rate will rise to 5.50 percent before a pause.
"We are now in much more uncertain territory. Monetary policy will become a
lot less predictable and more focused on data," said Lynn Reaser, chief
economist at Bank of America's Investment Strategies Group.
The economy in the first three months of this year grew at a brisk 4.8
percent pace, the fastest in 2 1/2 years. That is expected to slow to about 3
percent in the current April-to-June quarter, still a healthy pace.
One challenge facing the Fed is figuring out whether high energy prices will
feed inflation, slow overall economic activity or perhaps lead to both
scenarios. Another challenge is gauging the extent to which the housing market,
which racked up record high sales five years in a row, will slow this year. A
slowdown in the housing market is likely to crimp consumer spending and thus
overall economic activity.
So far, the run-up in energy prices and other commodities has had only a
modest effect on the prices of goods and services other than food and energy,
the Fed said. Still, "elevated prices of energy and other commodities have the
potential to add to inflation pressures," the Fed added.
Oil prices hit a record high of $75.17 a barrel in late April; they are
hovering above $72 a barrel currently. Gasoline prices have marched higher and
have topped $3 a gallon in some areas.
Bernanke took over as chairman on Feb. 1. Of the 16 rate increases,
Bernanke's Fed ordered two and his predecessor, Alan Greenspan, 14. Before the
increases, the funds rate had been sliced to a 46-year low of 1 percent to help
the economy recover from the bursting of the stock market bubble, a recession
and terror attacks.
