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Wednesday August 30, 3:02 AM
Fed minutes: Pause less risky than more tightening
By Mark Felsenthal
WASHINGTON (Reuters) - U.S. Federal Reserve policy-makers, while worried about inflation, decided that keeping interest rates steady would let them gather more data before deciding on any future rate rises, minutes of their August meeting released on Tuesday showed.
"Keeping policy unchanged at this meeting would allow the committee to accumulate more information before judging whether additional firming would be necessary to foster the attainment of price stability over time," minutes of the central bank's policy-setting Federal Open Market Committee's August 8 meeting said.
"The full effect of previous increases in interest rates on activity and prices probably had not yet been felt, and a pause was viewed as appropriate to limit the risks of tightening too much," the minutes said.
U.S. Treasury debt prices pared losses, stocks turned positive after an initial move lower and the dollar slipped, as markets viewed the Fed as concerned about inflation, but patient on the need for more interest rate increases.
"The focus on the markets will be directly on inflation and inflation related numbers," said Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois.
The Fed halted a more than two-year string of interest-rate rises at the August meeting, holding its benchmark short-term rate steady at 5.25 percent while assessing whether a slowing economy would keep inflation in check.
Richmond Fed Bank President Jeffrey Lacker dissented, preferring a quarter-percentage-point increase.
Lacker believed more rises would be necessary to bring inflation down more quickly than with a pause, the minutes said.
"Although real growth was likely to be somewhat lower in coming quarters, in his view it was unlikely to moderate enough to bring core inflation down," the Fed said.
Analysts said the minutes demonstrate that Lacker's backing for another rate increase was not widely shared.
"The expectation was that they would show more divisions among policy-makers than they actually did," said Jane Caron, chief economic strategist at Dwight Asset Management in Burlington, Vermont.
Fed officials were all worried about higher inflation readings, the minutes said. But policy-makers concluded that inflation expectations were contained and core inflation was likely to decline gradually over the next several quarters.
Even so, policy-makers left open the possibility of more rate increases if price pressures should persist.
"In view of the elevated readings on costs and prices, many members thought that the decision to keep policy unchanged at this meeting was a close call and noted that additional firming could well be needed," the minutes said.
Fed minutes: Pause less risky than more tightening
By Mark Felsenthal
WASHINGTON (Reuters) - U.S. Federal Reserve policy-makers, while worried about inflation, decided that keeping interest rates steady would let them gather more data before deciding on any future rate rises, minutes of their August meeting released on Tuesday showed.
"Keeping policy unchanged at this meeting would allow the committee to accumulate more information before judging whether additional firming would be necessary to foster the attainment of price stability over time," minutes of the central bank's policy-setting Federal Open Market Committee's August 8 meeting said.
"The full effect of previous increases in interest rates on activity and prices probably had not yet been felt, and a pause was viewed as appropriate to limit the risks of tightening too much," the minutes said.
U.S. Treasury debt prices pared losses, stocks turned positive after an initial move lower and the dollar slipped, as markets viewed the Fed as concerned about inflation, but patient on the need for more interest rate increases.
"The focus on the markets will be directly on inflation and inflation related numbers," said Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois.
The Fed halted a more than two-year string of interest-rate rises at the August meeting, holding its benchmark short-term rate steady at 5.25 percent while assessing whether a slowing economy would keep inflation in check.
Richmond Fed Bank President Jeffrey Lacker dissented, preferring a quarter-percentage-point increase.
Lacker believed more rises would be necessary to bring inflation down more quickly than with a pause, the minutes said.
"Although real growth was likely to be somewhat lower in coming quarters, in his view it was unlikely to moderate enough to bring core inflation down," the Fed said.
Analysts said the minutes demonstrate that Lacker's backing for another rate increase was not widely shared.
"The expectation was that they would show more divisions among policy-makers than they actually did," said Jane Caron, chief economic strategist at Dwight Asset Management in Burlington, Vermont.
Fed officials were all worried about higher inflation readings, the minutes said. But policy-makers concluded that inflation expectations were contained and core inflation was likely to decline gradually over the next several quarters.
Even so, policy-makers left open the possibility of more rate increases if price pressures should persist.
"In view of the elevated readings on costs and prices, many members thought that the decision to keep policy unchanged at this meeting was a close call and noted that additional firming could well be needed," the minutes said.
