Greenspan set to raise US rates

ALAN Greenspan will tonight take the seventh step in his mission to bring US interest rates back to a more neutral level by raising the cost of borrowing by a further quarter of a percentage point to 2.75%.

But with financial markets fearing the Federal Reserve may soon act more aggressively to put the brakes on growth, the Fed chairman's words will speak louder than his actions.

When the Fed last changed policy on 2 February, it said in its accompanying statement it would continue to raise rates at a 'measured' pace.

Analysts expect Greenspan to repeat the pledge today, but some believe there is a significant chance it could be scrapped, which would trigger a major shift in rate expectations. Rates are expected to be at 4% by the year-end but they could go higher.

Christopher Wheeler, economist at Barclays Capital in New York, said: 'Our best guess is that the Fed will retain the measured language, but the decision will be a very close call and will tell us much about how the Fed views inflation risks.

'Dropping the language would represent a paradigm shift. It would be a clear signal that it believes a half-point hike may be needed