Greenspan bows out with final rise in interest rates

Alan Greenspan last night marked the end of his eighteen and a half-year stint at the helm of the Federal Reserve with an increase in interest rates designed to prevent higher inflation in the world's largest economy.

In a move wholly expected on Wall Street, America's central bank voted at its 14th consecutive meeting to push up the cost of borrowing, with the quarter-point increase taking the benchmark Fed funds rate to 4.5%. Mr Greenspan handed over control of the Fed last night to Ben Bernanke and in a statement accompanying its unanimous decision, the Fed's open market committee hinted that its tightening of monetary policy might be coming to an end. Financial markets believe Mr Bernanke may want to raise rates at least once to display his anti-inflation credentials, but think an easing in house-price inflation may slow consumer demand and the economy during 2006.

The Fed statement made no reference to Mr Greenspan's bowing out after a career as chairman that started shortly before the 1997 stock market crash, but simply noted that while the economy had recently been giving out mixed signals, the expansion seen since the short-lived recession in 2001 appeared solid.

"Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures." The FOMC added that "some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the committee will respond to changes in economic prospects as needed to foster these objectives."

Brian Gendreau, investment strategist at ING Investment Management in New York said: "This in my mind increases the chances of another rate hike in March. They have not declared the war on inflation to be over."