Fed raises rates again; construction spending, cost, wage trends are mixed
The Federal Reserve's Federal Open Market Committee, with Alan Greenspan chairing for the last time, voted 10-0 to raise its short-term interest rate target for the 14th straight time by 25 basis points, to 4.5%. The Committee accompanied its vote with the explanation, “Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures. The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.” This last sentence suggests that another rate increase is likely in the near future, although the committee will be headed then by a new Fed Chairman, Ben Bernanke, who was confirmed by the Senate minutes after the Fed announcement.
Among the “uneven data” was a report yesterday from McGraw-Hill Construction that the value of new construction contracts slipped 1% in December at a seasonally adjusted annual rate. Residential building contracts were down 2% for the month, while nonresidential building and nonbuilding contracts each rose 2%. For 2005 as a whole, new contracts were 10% higher than in 2004, led by a 14% gain in residential contracts. Nonresidential rose 5%, and nonbuilding, 7%. These numbers are not adjusted for inflation.