Fed raises key rate, hints of more hikes

WASHINGTON -- The Federal Reserve's new boss, Ben Bernanke, has the same concern as the old boss: Inflation could flare up. So higher interest rates are likely.

Bernanke, at his first meeting as Fed chairman, presided over the boosting of borrowing costs to a five-year high and hinted an additional increase could be in store. He stuck to the script written by his predecessor, Alan Greenspan, who ran the central bank for 18 1/2 years.

Wrapping up a two-day meeting yesterday, Bernanke and his Fed colleagues struck a mostly positive tone, saying the economy ''rebounded strongly" in the January-March quarter from an end-of-year lull. But Fed policy makers raised concerns about the potential for inflation to take off.

In a unanimous decision, the Fed raised the federal funds rate by one-quarter of a percentage point, to 4.75 percent. This rate, which is what banks charge each other on overnight loans, affects 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 -- to 7.75 percent.

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

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. Some predict a quarter-point jump.