Jun 30 saw the US Federal Reserve Committee announced in Washington that it was to raise the inter-banking overnight interest rate of the federal fund reserve by 0.25 percentage point, namely from a rate of 1 percent to 1.25 percent. This is the first time for the US to increase its deposit rate in the past four years. Before that the 1-percent interest rate for the federal fund has been operated for already a year, the lowest record of interest rate in the past 46 years. An article by the New York Times holds: the decision of interest rate increase by the federal reserve has announced officially that the times of the unprecedented lowest interest rate in the USA is nearing its end.

A bit of cold water over inflation

Dr. Robert C.Solomon, a senior researcher of the Brookings Institution, an economist working for a long time in the Federal Reserve said when interviewed, for him, the decision of interest rate increase by the Federal Reserve is "not at all unexpected". Solomon holds, due to a limited margin in interest rate increase it is estimated that it won't effect a direct big influence on the US economy and even less impact on the world economy. As this has already been taken into consideration so the Wall Street reaction is relatively smooth. On the very day when the decision of interest rate increase was announced the Dow Jones index of 30 industrial stocks showed only an average increase by 22.05 points.

Alan Greenspan, Chairman of the US Federal Reserve has since last year been whipping up opinions in the public by saying, one percent interest rate was too low and it was impossible to last long from a long-term point of view. For the Federal Reserve to raise the interest rate at the crucial moment, the US public opinions popularly hold that one of the important reasons was to pour a bit of cold water over the initially shooting inflation. The US economic recovery in the first half of the year was still quite strong. In addition to the continuous rise in individual consumption and confidence of consumers the employment market began to recover too. Under the circumstances the Federal Reserve held that the US economy was also facing a risk of inflation which was becoming increasingly prominent. According to statistics, aside from the prices of foodstuff and energy resources that showed a big fluctuation, the price index for individual consumption in the initial two months increased by 2 percent in the USA. The "Chicago Purchasing Managers Index" published the other day also indicates, the payoff price showed a rapid rise to the highest level as ever appeared since 1980.

Some feel pleased while some wear a worried face

Since the end of 1990s, the US economy has met with a series of vehement challenge. The first is the fall through of the US hi-tech bubbles, which was followed with the "9.11" terrorist attack and in the wake of that again were the two wars -- one in Afghanistan and another in Iraq. Confronted with these fearful tides and dreadful waves Greenspan pulled out his hack--reducing the interest rate. During the past three and half years Greenspan has for several times laid his sword on the short-term interest rate, reducing it from 6.5 percent to only 1 percent. The interest reduction has really taken a wonderful effect on the US economy, "making it to turn round from jeopardy".

Now Greenspan has unveiled the curtain of increasing the interest rate. This may make some people feel pleased while some wear a worried face. For the interest rate increase one who feels most excited is perhaps Bush, the US president. The interest rate increase by the US Federal Reserve will on the one hand help contain the inflation and on the other won't produce any immediate negative effect on the domestic economic growth, pointed out analysts, whereas the president election is going to be help in November. For Bush, an arguable one to get reelected, this is beyond doubt a very good news.

An article carried on the "Wall Street Journal" pointed out, the interest rate increase marked the end of the era for the extra-low cost in finance. Surely, due to the very low interest rate it was very easy to get in a loan and the Americans got crazy in consumption while enterprises tried to get in as much loans as possible. The real estate business was very brisk and in a great boom. But now Americans have to think twice before they start to buy houses, cars by getting in loans or using credit cards.

Little step forward for interest rate increase in future

Jun 30 saw all members of the public market committee, a decision-making organ of the US Federal Reserve pro for the interest rate increase. In the meanwhile they expressed, this is the initial debut for the gradual interest rate increase in future. However, they also promised that they would carry on the adjustment of the interest rate in a moderate way. But how is the word "moderate" to be explained? Analyses by some financiers hold, this is actually soothing the enterprises, consumers and investors, i.e. the interest rate of the US Federal Reserve will not see a "big leap forward" in a short time. Actually, the US Federal Reserve did not lay a hack on the interest rate reduction in the past and it holds true for the interest rate increase later on to be carried out little by little in order to avoid financial fluctuation.

According to analysis of experts, it is expected that in the two years time the US Federal Reserve will raise its interest rate every time by 0.25 percent and by the end of this year the interest rate will perhaps reach 2.25 percent.

Article carried on People's Daily of July 4 and translated by People's Daily Online