New chief, same plan; Fed resumes rate hikes

WASHINGTON — Ben Bernanke, sticking with the Federal Reserve’s playbook in his first meeting as chairman, boosted borrowing costs to a five-year high and hinted that an additional interest rate increase could be in store.

Wrapping up a two-day meeting Tuesday, Bernanke and his Fed colleagues struck a mostly positive tone, saying the economy “rebounded strongly” in the January-to-March quarter from an end-of-year lull. But Fed policymakers raised concerns about the potential for inflation to flare up.

On Wall Street, stocks tumbled as investors expressed disappointment that more rate increases could be in the offing. The Dow Jones industrials lost 95.57 points to close at 11,154.54.

In a unanimous decision, the Fed raised its key interest rate — the federal funds rate — by one-quarter of percentage point, to 4.75 percent. This rate, which is the interest that banks charge each other on overnight loans, affects other rates charged to consumers and businesses.

Commercial banks reacted by lifting their prime lending rate — for certain credit cards, home equity lines of credit and other loans — by a corresponding amount, to 7.75 percent

Both the prime rate and the funds rate are at their highest since the spring of 2001.

Bernanke presided over his first meeting of the Federal Open Market Committee, the group that sets interest rates, and continued the gradual rate-raising campaign set in motion by his predecessor, Alan Greenspan.

It was the 15th such increase since the Fed started tightening credit in June 2004.

Attention now turns to the next meeting, on May 10.

“The statement suggests that we will see another rate hike in early May to ensure that the inflation genie stays in the bottle,” said Lynn Reaser, chief economist at Bank of America’s Investment Strategies Group.