IE 11 is not supported. For an optimal experience visit our site on another browser.

Fed surprises markets, hiking rates again

Federal Reserve Chairman Ben Bernanke and his colleagues surprised financial markets Tuesday, raising short-term interest rates for an 18th straight time despite recent signs of an economic slowdown.

The Federal Reserve Tuesday raised short-term interest rates a quarter-percentage point for an 18th straight time, surprising financial market analysts who had expected the central bank to at last take a break in a campaign that has lasted more than two years.

The decision by the central bank raises borrowing costs for businesses and consumers, reflecting the Fed's determination to stamp out inflation despite signs of an economic slowdown, including last week's report of sluggish job growth.

The move raises the benchmark overnight lending rate for banks to 5.5 percent and will raise the commercial bank prime rate to 8.5 percent, the highest levels in more than five years.

Investors and analysts had been closely divided about the Fed's toughest decision in years, which was a test of the leadership of Chairman Ben Bernanke, who took over from longtime Chairman Alan Greenspan in February.

But given the economic slowing, most analysts and major investors had come to the conclusion that the Fed panel would leave rates unchanged for now, even if policymakers pushed through one more rate hike later in the year.

Short-term rates are now at their highest level since March 2001, when the Fed was in the middle of a campaign to spur growth that eventually lowered the overnight rate to a 46-year low of 1 percent.

Beginning in June 2004, the Greenspan-led Fed began hiking rates a quarter-point at a time, and the policymaking Federal OPen Market Committee has continued that pattern at every meeting since.

This is a developing story. Please check back soon for more details.