Fed Raises Interest Rates

The the Federal Reserve on Tuesday boosted a key interest rate for a 10th time and signaled that more rate hikes were likely to prevent a rebounding economy from stoking unwanted inflation.

The action pushed the Fed's target for the federal funds rate up to 3.5 percent, the highest level in almost four years.

The move was certain to be followed by an announcement by commercial banks that they were increasing their prime rate, the benchmark for millions of consumer and business loans, by a similar quarter-point. That would put the prime at 6.5 percent, its highest point in four years.

The Fed has raised interest rates at every one of its meetings going back to June 2004 when the funds rate, the interest that banks charge each other, stood at a 46-year low of 1 percent.

In its latest announcement, the Fed kept language pledging to move rates up "at a pace that is likely to be measured." That phrase is interpreted by financial markets as signaling continued quarter-point moves.

Tuesday's announcement had been widely anticipated after Federal Reserve Chairman Alan Greenspan told Congress last month that further rate increases were needed to make sure solid economic growth did not trigger inflation pressures.

But as CBS' Meg Oliver reports, the announcement is not expected to slow the U.S. housing market, which soared to an all-time high in June.

Many analysts believe the Fed will keep raising interest rates at its final three meetings of the year, in September, November and December, leaving the funds rate at 4.25 percent at year's end.

The central bank, acting at a previously scheduled meeting, acted as President Bush talked economic policy at his Texas ranch with his domestic policy advisers.

Speaking to reporters there, Mr. Bush proclaimed the economy as "strong" and said the "foundation for sustained growth is in place." He sidestepped a question about interest rate increases, saying "I trust the judgment of Chairman Alan Greenspan."

However, faith in Mr. Bush isn't soaring when it comes to the economy. A recent CBS News poll revealed that 52 percent of Americans disapproved of the way he's handling economic issues.

A wide range of recent economic reports has indicated that the economy is growing at a solid pace despite the fact that energy prices have surged to new record levels approaching $64 per barrel on Monday.

But Senior Economist Jared Bernstein of the Economic Policy Institute told Oliver that the average American might not feel the changes in the economy that Mr. Bush addressed.

"You can have an economy that's improving on some of these overall measures but if you're paychecks getting squeezed at the pump it's not going to feel that good to you," Bernstein said.

The Fed took note of current economic conditions in its brief announcement, stating that consumer and business spending have strengthened since the late winter despite high energy prices and labor market conditions have continued to improve gradually.

The Fed said that inflation outside of energy and food "has been relatively low in recent months" and that long-term inflation expectations remain well contained. But it added a cautionary warning that "pressures on inflation have stayed elevated."