WASHINGTON – The Fed again raised rates 25 basis points last week, bringing overnight funds to 3.75%. "They left in `measured pace' in the equation. As far as they're concerned unless something really unusual happens or worse than they expect from Katrina, they expect to continue to raise rates," said WesCorp VP of Economic Research Dwight Johnston. Johnston said rates will likely hit 4.25% by December. He was surprised the Fed did not address Katrina in more detail. "I don't know what their reason was for that." Interestingly, he said yield curve traders are on a roller coaster ride. The spread between the two-year and ten-year went from about 35 basis points prior to the announcement and down to 26 basis points shortly after -again moving the yield curve more flat.
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