US lifts interest rates

INTEREST rates are going up in the US again as the Federal Reserve acts to keep a lid on inflation. The central bank's move is the sixth successive rate increase and takes the headline rate to 2.5%.

The rate rise was not unexpected and financial markets took it in their stride. The increase reflects the improving economic situation, which continues despite continued high energy prices. In a statement following the two-day meeting, the Fed said economic risks were balanced between slower growth and rising prices.

It started lifting rates last June, from an historic low of 1%, confident the economy was in a sustainable expansion more in need of higher rates to avert inflation than the stimulus of cheap credit.

More detail on the Fed's view of the economy will come in two weeks' time when chairman Alan Greenspan testifies before the Senate and then the House of Representatives on the picture for economic growth.

Since the downturn of 2001, the US economy has grown steadily, and the Fed's 13 interest-rate cuts are at least partly responsible for helping it survive the impact of the attacks of September 11 in 2001, and other problems, including several major corporate scandals.

The most recent data on gross domestic product showed a 3.1% annual rate of economic growth in last year's fourth quarter but that number may have been understated because of an error by Canadian officials on trade data.

Most recent US economic reports have implied continued expansion, including this week's survey by the National Association of Purchasing Management, which showed businesses in the Midwest grew in January at a faster-than-expected rate.

Jobs growth, while steady, has not been robust and some economists have suggested this might lead the Fed to rethink rate rises in the months ahead. One potential negative is the lofty oil price, which topped $55 a barrel last year and were trading at a still expensive $47 on Wednesday.

America's expansive move contrasts with the picture in Europe. Germany yesterday confirmed its economy remains in a parlous state with unemployment now at its highest level since the Great Depression of the 1930s and the rise of Hitler.

Economists think that Britain could surpass Germany as Europe's largest economy within a generation since UK employment is high and Britain is expanding at a faster rate. Britain's gross domestic product per head has already overtaken Germany's. And the Federal Labour Office in Germany confirmed that the jobless number rose by more than 500,000 to 5m last month ? 12.1% of the working population. Ministers said the true jobless total could be closer to 7m once those on subsidised employment schemes were included.