Fed raises rates again

Central bank boosts interest rates a quarter-point to 3% and says more "measured" hikes are likely.

May 3, 2005: 2:19 PM EDT

NEW YORK (CNN/Money) - The Federal Reserve raised a key short-term rate by a quarter of a percentage point Tuesday. The move, widely expected on Wall Street, was the eighth such increase since last June as the central bank tries to fight off inflation.

The fed funds rate, which banks use to determine the interest they charge for loans, now stands at 3 percent. While still near historical lows, this is the highest that interest rates have been since September, 2001.

In addition, the Fed's Open Market Committee said in its closely watched statement that it would probably keep raising rates at a "measured" pace, which many economists and market observers interpret to mean that more quarter-point hikes are likely during the next few months.

The Fed has been raising rates in order to keep pricing pressures at bay. Relatively high oil prices have sparked concerns that businesses would start passing off higher energy costs on consumers. But other recent data indicates that the economy hit a soft patch in the first quarter and that has raised fears about a slowdown.