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WHY THE FED CAN TAKE ITS TIME July 2004 The Federal Reserve took its first step in the new interest rate tightening cycle on June 30, 2004, when it raised the target Federal funds rate 25 basis points to 1.25%. Adjusting the price of money through the Fed funds rate is the Fed’s primary tool for maintaining price stability while allowing maximum sustainable economic growth. Now the question is, how much more Fed tightening can we expect, and how soon? The Fed has made clear its preference for a “measured” approach to removing economic stimulus. We believe a gradual pace of rate increases will result and, further, that the highwater mark of interest rates during this tightening cycle will be lower than during the most recent ones. |
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