The Federal Reserve met in Washington today and ordered another quarter-point hike in short-term interest rates. Mike Sherzan heads an Iowa-based brokerage and financial-services firm. He says it’s basically the “overnight funds rate” for banks borrowing money in overnight transactions, a figure he says has been at a forty-year low. Today the board raised that rate to one and three-quarter percent. Most analysts predicted this rate increase, and the Sherzan says the “fed” has this power as a tool to keep the economy stable. He calls it a balancing act the fed and its chairman Alan Greenspan must perform, balancing growth and controlling the forces of inflation with the only things at his disposal, and he says that’s what they did today, controlling the economy with what the cost of money is. The fear is that inflation would get out of hand, though with energy prices high and productivity keeping pace, inflation hasn’t been a problem. With interest rates near historic lows, the financial advisor says the goal’s to smooth out volatility in the national recovery and avoid swings like the radical moves we saw in the 1980s. He says oil prices are a big factor in today’s economy. Oil prices are at unbelievable heights, he says, and that’s held economic growth to a slow pace since goods and services all depend on transportation, which is limited by the energy costs. The cost of commodities like milk also has been slow to move, and Sherzan says that lack of volatility is a good thing because its reverse would be the inflationary pressure the fed’s aiming to keep under control with small moves like the three quarter-point increases so far this year.
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