Thursday, June 29, 2006

Interest Rate Hits Five-Year High

On Thursday, the Federal Reserve raised the federal funds rate (the interest that banks charge each other) by a quarter-point to 5.25 percent, the highest level in more than five years. This rate raise, the 17th consecutive increase, was done in order to help "limit inflations pressures," according to a statement released by the Fed. Only two years ago, the fund rate stood at a 46-year low of 1 percent. Banks responded to the Fed increase by quickly raising the prime rate (to which most consumer lending is tied) to 8.25 percent, the highest since 2001. Before the Fed’s move Thursday, the average rate on a 30-year mortgage was 6.78 percent.


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