Federal Reserve policymakers increased the short-term interest rate a quarter of a point to 2.5% today, the sixth consecutive rise since the end of June.
Economists across the political spectrum had expected the increase, part of a continuing Fed campaign to raise rates at what it considers a "measured" pace. As the brokerage firm Lehman Brothers wrote in its weekly economic commentary, economists "expect no surprises."
The rate, which governs overnight loans to banks, was as low as 1% as the Fed loosened credit to bring the country out of the 2001 recession. By raising the rate, the Fed, in effect, believes that the economy is doing well, and a slight tweak in interest rates was needed.
The Federal Open Market Committee, in its second day of meetings, issued a statement on its website.
"The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity," it said.
"Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions continue to improve gradually. Inflation and longer-term inflation expectations remain well contained.
"The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal. With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability," it said.
Last week, the Commerce Department reported that the economy grew at 4.4%, the best showing since 1999, when the gross domestic product grew at 4.5%. However, the fourth-quarter growth was a relatively lackluster 3.1%, usually attributed to a 3.9% decline in U.S. exports.
It is usual for the stock and money markets to drift before the Fed announcement, but strong results from several companies pushed stocks up. After a disappointing beginning in the new year, stocks have scored gains in five of the last six sessions.
At noon trading, the Dow, NASDAQ and Standard & Poor's were all up slightly and bumped up a bit more after the Fed announcement.
The tech sector got a supercharged boost from Google, which reported its profits were up eight-fold. The stock jumped 11% to around $212 a share giving the Internet search company three times the capitalization of General Motors. GM, a Dow component was up about 1.7%.
Boeing, and the drug companies, Pfizer and Merck, were also leading the market higher.
The strength of the economy will play a role in how the Bush administration pushes for its priorities, to be outlined tonight by the president in his State of the Union speech. It will also be the centerpiece when Fed Chairman Alan Greenspan gives his semiannual testimony before Congress, slated for Feb. 16 and 17. Greenspan is scheduled to retire next year.
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