NEW YORK — An economist from credit insurer Euler Hermes ACI said in a report following last week’s Federal Reserve interest rate hike that the increase — and another one down the road — “will have effects that will be felt well into 2007.”

On May 9, the Fed raised the Federal Funds rate by one-quarter percent to 5 percent. Dan North, chief economist from Euler Hermes ACI, said, “Twenty-three months ago, the Fed Funds rate stood at 1 percent, meaning that the Fed has substantially tightened monetary policy over that period.”

North said the Federal Open Market Committee “noted that while so far core inflation has been tame … the Fed is still concerned about inflationary pressures in the economy and raised the Fed Funds rate as a result. The financial markets now predict that the Fed is likely to raise rates at least one more time by September.”

North explained that while the FOMC’s policy may reduce inflationary pressures, “it also acts as a brake on the economy, which does not feel the effects right away. Rather, the effects are lagged about one year, sometimes even more.” North said that after last week’s action, the economy “will now have to continue with the brake on for another year.”

North said, as a result, there has been speculation by economic experts that “the Fed may have tightened too much.”

This story first appeared in the May 15, 2006 issue of WWD. Subscribe Today.