Fed boosts interest rates again

WASHINGTON — The Federal Reserve boosted a key short-term interest rate by one-quarter percentage point Wednesday. Citing an improving economy and “well contained” inflation, it said further increases would be gradual.

The rate increases are part of a credit-tightening campaign to bring rates back up to more normal levels now that the economy’s recovery from the 2001 recession is more deeply rooted.

Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues — who set interest rate policy in the United States — increased the target for the federal funds rate to 2 percent from 1.75 percent.

The funds rate is the interest banks charge each other on overnight loans and is the Fed’s primary tool for influencing economic activity.

In response to the Fed’s decision to push up the funds rate, Wells Fargo said it was increasing by a corresponding amount its prime lending rate for many short-term consumer and business loans to 5 percent from 4.75 percent. Other commercial banks were expected to follow suit.

The Fed’s current rate-raising campaign began in June with a quarter-point boost, marking the first rate increase in four years. The Fed bumped up rates again by a quarter-point in August and September and then once more Wednesday.

The vote was unanimous.