(by Dr. Goldfinger)

On Tuesday, the U.S. Federal Reserve lifted its short-term interest rates by 25 basis points, showing the U.S. economy expands.

Fed raised interest rates to 1.75% from the prior 1.5% despite of coming presidential elections on November 2. Specialists say it is not the last increase of the interest rate for 2004, the next and the last one is expected to appear during the FOMC’s meeting on November 10 after eight days the U.S. has new president.

Analysts say Fed is trying to get close to more neutral positions. “They want to raise rates 25 basis points a meeting until they get closer to a neutral position. They will continue raising rates well into next year,” said Edgar Peters, a chief investment officer at PanAgora Asset Management in Boston.

FOMC meeting showed that Fed did not change its prior outlook at the U.S. economy, noting that despite of high oil prices U.S. output growth “has regained some traction,” which keeps step with recent Alan Greenspan’s testimony before Congress. Fed is cautious of oil prices going higher, but does not think this fact can devastatively impact economic expansion.

“Labor market conditions have improved modestly. Despite the rise in energy prices, inflation and inflation expectations have eased in recent months,” was said in FOMC’s statement.

Really, despite of job data decline, Fed tries to give evidence that labour market recovers and consumer spending rises, supported by the growing income data.