The Federal Reserve, encouraged by the U.S. economy's performance, boosted a key short-term interest rate by one-quarter percentage point Tuesday, the fifth increase this year. In their last regularly scheduled session for 2004, Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues _ the group that sets interest rate policy in the United States_ increased the target for the federal funds rate to 2.25 percent from 2 percent. The funds rate _ the interest banks charge each other on overnight loans _ is the Fed's main tool for influencing economic activity. The economy «appears to be growing at a moderate pace despite the earlier rise in energy prices and labor market conditions continue to improve gradually,» the Fed said in a brief statement after the meeting. As a result of the Fed's decision to push up the funds rate, commercial banks were expected to increase their prime lending rate to 5.25 percent, from 5 percent. The prime lending rate, the benchmark for many short-term consumer and business loans, moves in lockstep with the funds rate. The Fed's current rate-raising campaign began in June, when the central bank ordered its first rate increase in four years. Since then, it has boosted rates five times, with each move by a modest, one-quarter point. Fed policy-makers on Tuesday stuck to their view that future rate increases would be gradual. The Fed said that rates can be raised «at a pace that is likely to be measured.» There are eight scheduled Fed meetings in 2005; the first is Feb. 1-2. The vote was unanimous. -
