Byline: THE WASHINGTON TIMES
Federal Reserve Chairman Alan Greenspan and his colleagues on the Fed's monetary policy-making committee meet today to decide whether to raise their principal target interest rate, the federal funds rate. That's the rate banks charge each other for overnight loans of excess reserves on deposit at the Fed.
When the policy-making committee last met at the end of June, it did so amid signs that the belated acceleration of the post-2001 economic expansion had all the appearances of being self-sustaining. Meanwhile, inflationary pressures had begun to intensify. In late June, the latest payroll employment data revealed that nearly 1 million jobs had been created during the previous three months. After having slashed the federal funds rate from 6.5 percent in early 2001 to 1 percent in June 2003, the Fed increased its target rate on June 30 for the first time since mid-2000, raising it one-quarter of a percentage point to 1.25 percent. June's policy action was designed to be the first of a series of incremental increases in short-term interest rates. In a carefully orchestrated, meticulously telegraphed maneuver for which the Fed had spent months preparing the financial markets, those increases were to be implemented at a pace that was - in Fedspeak - "likely to be measured."
Since the Fed's last meeting, the economy has hit what Mr. Greenspan has aptly called a "soft patch." June retail sales declined, as did June's index of leading economic indicators. …