Fed Raises Key Interest Rate

WASHINGTON - The Federal Reserve raised a key short-term interest rate by one-quarter percentage point Tuesday, the third such increase this year.

The Federal Open Market Committee, chaired by Alan Greenspan, increased the target for the federal funds rate to 1.75 percent, from 1.50 percent. The funds rate is the interest banks charge each other on overnight loans and is the Fed's primary tool for influencing economic activity.

As a result of the Fed's decision to push up the funds rate, commercial banks were expected to increase by a corresponding amount their prime-lending rate for many short-term consumer and business loans to 4.75 percent, from 4.50 percent.

Despite what Greenspan described as an economic ?EUR??,,????'??soft patch?EUR??,,????'?? earlier this summer, the Fed is sticking to its rate-raising schedule. This campaign began in June when the central bank ordered its first rate increase in four years. That was followed by a rate increase in August.

Fed policy-makers stuck to their view that future rate increases would be gradual. It said rates could be raised at ?EUR??,,????'??a pace that is likely to be measured?EUR??,,????'?? given that inflation is expected to remain relatively low.