Fed hikes rates amid generally positive US and global economic data

As widely expected, the Federal Reserve raised interest rates yesterday by 25 basis points. Reuters has this story and more.

The Federal Reserve on Tuesday raised U.S. interest rates to the highest in four years... The central bank's policy-setting committee raised rates for the 12th time in a row by a quarter of a percentage point, to 4.00 percent, in line with market expectations.

As U.S. businesses and consumers alike grapple with exorbitant fuel prices, the Fed said high energy costs could add to inflationary pressures in the economy but added that longer-term inflation expectations were contained... The Fed said monetary policy remained accommodative, suggesting it had room to raise rates further, but kept its vow to do so at a "measured" pace...

The Institute for Supply Management said its index of nationwide manufacturing edged down to 59.1 in October, a slightly slower growth pace than September's 59.4... New orders and production continued to expand and employment grew, but the ISM's prices-paid index hit 84.0 in October, up from 78.0 in September, as energy costs rose...

In a separate report, the U.S. Census Bureau said construction spending rose 0.5 percent in September to a record high $1.120 trillion, after August's upwardly revised 0.6 percent increase...

General Motors Corp., the world's largest carmaker, reported a 22.7 percent drop in October U.S. vehicle sales compared with a year ago, for the third consecutive monthly drop, while Ford Motor Co., the No. 2 U.S. automaker, reported a 23.1 percent fall.

Also on Tuesday, independent research group Redbook Research said sales at U.S. chain stores rose as cooler temperatures and Halloween shopping lifted sales of seasonal goods. October sales to date were up 1.3 percent compared with the same September period, while sales at major retailers rose 4.5 percent on a year-over-year basis for the week ended October 29.

The Federal Reserve's tightening campaign does not appear to be threatened by developments overseas, at least for the moment.

Manufacturing was generally strong elsewhere as well. The global Purchasing Managers Index (PMI) compiled by JP Morgan climbed to 54.9 in October, its highest level since September 2004, from 54.7 in September. The euro-zone PMI climbed one point to a 13-month high of 52.7 in October. However, in China, the PMI fell to 50.1 in October, the worst reading in the China survey's 19-month history, from 50.9 in the previous month.

The data from the UK yesterday were positive. The CIPS/RBS purchasing managers' index edged up to 51.7 in October from 51.5 in September. And the Nationwide building society reported that house prices rose 1.3 percent in October, taking the annual rate of house price inflation up to 3.3 percent, confirming other indicators that the fall in prices has been arrested.