Posted By: Eugene Taylor
By Mark FelsenthalWed Nov 15, 3:56 PM ET
WASHINGTON (Reuters) - U.S. Federal Reserve officials
worried last month that inflation might not recede as hoped and
an inflationary psychology could set in, making their job
tougher, according to meeting minutes released on Wednesday.
ADVERTISEMENT
var lrec_target="_top";var lrec_URL=new Array();
lrec_URL[1]="http://us.ard.yahoo.com/SIG=12form87o/M=540720.9558360.10292400.1442997/D=news/S=7665819:LREC/_ylt=A9FJqZMi2FtF3HUBjwCb.HQA/Y=YAHOO/EXP=1163654210/A=4104668/R=0/id=flash/SIG=11m6h82to/*http://www.asseenontvnetwork.com/track/click/257466/";
var lrec_fv="clickTAG=javascript:lrec_window(1)";
var lrec_swf="http://us.a2.yimg.com/us.yimg.com/a/li/livemercial/110706_ny_lrec_swf.swf";
var lrec_altURL="http://us.ard.yahoo.com/SIG=12form87o/M=540720.9558360.10292400.1442997/D=news/S=7665819:LREC/_ylt=A9FJqZMi2FtF3HUBjwCb.HQA/Y=YAHOO/EXP=1163654210/A=4104668/R=1/id=altimg/SIG=11m6h82to/*http://www.asseenontvnetwork.com/track/click/257466/";
var lrec_altimg="http://us.a2.yimg.com/us.yimg.com/a/li/livemercial/110706_ny_lrec_gif.gif";
var lrec_w=300;var lrec_h=250;
if (window.yzq_a == null) document.write("");if (window.yzq_a)
{
yzq_a('p', 'P=KicEPELaS.YoQmPxMQKIWhBLSDRIwkVb2CIABYEJ&T=1anp048ql%2fX%3d1163647010%2fE%3d7665819%2fR%3dnews%2fK%3d5%2fV%3d1.1%2fW%3d8%2fY%3dYAHOO%2fF%3d2879431548%2fH%3dY2FjaGVoaW50PSJuZXdzIiBjb250ZW50PSJGZWQ7ZnVlbDtlbmVyZ3k7ZnVuZHM7cHJpY2U7aXQ7RmVkZXJhbCBSZXNlcnZlO2ludGVyZXN0IHJhdGU7RnV0dXJlcztzdG9jaztkb2xsYXI7ZnVuZDtob3VzaW5nO2hvdXNlO2hvbWU7aGVscDtiYW5rOyIgcmVmdXJsPSIiIHRvcGljcz0iIg--%2fS%3d1%2fJ%3d93A949D1');
yzq_a('a', '&U=13a9ctau7%2fN%3doVO4FkLaX9M-%2fC%3d540720.9558360.10292400.1442997%2fD%3dLREC%2fB%3d4104668');
}
"All members agreed that the risks to achieving the
anticipated reduction in inflation remained of greatest
concern," minutes of the Fed's policy-setting Federal Open
Market Committee October 24-25 meeting said.
"Members noted that a significant amount of data would be
published before the next committee meeting in December, giving
the committee ample scope to refine its assessment of the
economic outlook before judging whether any additional firming
was needed to address those risks," the minutes said.
Fed participants expressed concern that inflation
expectations could drift upward if core inflation -- as
measured when volatile fuel and energy costs are stripped out
-- remain elevated for a protracted period.
The Fed in October kept its benchmark overnight federal
funds rate steady at 5.25 percent for the third meeting in a
row, predicting that moderating economic growth would likely
ease consumer price pressures.
MESSAGE "HAWKISH"
The minutes conveyed Fed concerns about the outlook for
inflation, but expectations that core inflation would edge
lower as economic growth slows, although it noted that there
were dangers that price rises could fail to ease.
"All participants emphasized that the risks around the
desired downward path to inflation remained to the upside," the
minutes said.
Prospects for Federal Reserve interest rate policy to
remain on hold for several more months were solidified by
Wednesday's minutes.
Futures prices show the Fed will hold policy steady through
January as chances of a cut in the federal funds rate in March to 5 percent from the current 5.25 percent were last at
14 percent, down from as high as 40 percent on Tuesday.
After the minutes release, U.S. Treasury debt prices
extended losses while Wall Street stock prices pared gains but
stayed in positive territory, and the dollar edged higher.
"The main message was a little bit of a hawkish one. They
wanted to remind that they still have a bias toward raising
rates if inflation remains as high as it has been over the past
12 months," said John Miller, head of fund management at Nuveen
Investments in Chicago.
Fed officials were confident that the economy would expand
at a rate close to or a little below its long-run potential and
that any drag the slowdown in housing activity would have would
gradually wane.
The slowdown in the housing market and declines in house
price gains was not translating to a slowdown in consumer
spending to date, the Fed said.
"Many participants drew some comfort from the most recent
data, which suggested that the correction in the housing market
was likely to be no more severe than they had previously
expected and that the risk of an even larger contraction in
this sector had ebbed," the minutes said.
TIGHT LABOR MARKET
But many participants expressed concerns that any
significant home price declines could have a more pronounced
impact on consumer and other spending.
While the labor market remained tight, it was unclear from
data whether wages were rising as a result, the minutes said.
But members saw high profit margins as providing some scope for
businesses to absorb increased labor costs without passing them
on to consumers in the form of higher prices.
Policy-makers also discussed the merits of inflation
targeting at their meeting but felt the issue merited more
deliberation, the minutes showed.
"The possible specification of a numerical price objective
raised a number of complex and interrelated issues that
required considerable further discussion," the minutes said.
Participants agreed to continue their review of communication
issues at the FOMC's January meeting.
Fed Chairman Ben Bernanke believes adopting an explicit
target would help the U.S. central bank anchor inflation
expectations. But some other Fed policymakers have voiced
concern that it might also deny them important policy
flexibility.
Democrats, who retook control of Congress in November 7
elections for the first time in 12 years, have also expressed
worry that any target may be bad news for job growth.
Congress has given the Fed a dual mandate to seek both
price stability and full employment.
The information reported above is property of Yahoo! inc. and reprinted or modified with legitimate permission.