Inflation is Fed's big worry
Federal Reserve policymakers signaled that an economic contraction in the first half won't be enough to spur further interest-rate cuts because of a rising threat from inflation.
Minutes of the Federal Open Market Committee's April 29-30 meeting, released in Washington, showed many officials foresaw a contraction from January to June. At the same time, they raised their consumer-price estimates and said risks are more closely balanced between weaker growth and faster inflation.
"They will be patient," said Vincent Reinhart, former head of the Fed's monetary-affairs division and now a scholar at the American Enterprise Institute in Washington. "They are signaling that they will probably control the inflation risk by keeping the federal funds rate tighter than usual in 2009."
The report indicated Chairman Ben S. Bernanke and his colleagues are increasingly concerned by public expectations for inflation that climbed to a 12-year high this month. Traders anticipate the Fed will keep its benchmark rate unchanged next month and raise it by year-end.
The April 30 decision to lower the main rate by a quarter point, to 2 percent, was a "close call" for most FOMC members, the minutes said. The reduction capped off 2.25 percentage points of reductions this year, including cuts of 0.75 point in January and in March.
Weaker growth
Policymakers updated economic forecasts at the meeting, estimating US gross domestic product will increase by 0.3 percent to 1.2 percent this year, down from the 1.3 percent to 2 percent pace they foresaw in January.
Consumer prices, minus food and energy costs, are projected to rise by 2.2 percent to 2.4 percent, up from a range of 2 percent to 2.2 percent in the last forecast.
The report may have raised investor concerns about stagflation, the combination of stagnant growth and high inflation seen in the 1970s, said Keith Hembre, chief economist at Minneapolis-based FAF Advisors Inc, which oversees $113 billion in assets.
Agencies
(China Daily 05/23/2008 page17)
