Federal Reserve policymakers – no longer confident that inflation will subside on its own – again are considering raising interest rates, the minutes of their meeting last month indicate.
At that meeting, the Federal Open Market Committee unanimously agreed to leave the key interbank overnight lending rate at 5.25 percent, as it has since August.
But the minutes released late yesterday reveal that the FOMC also agreed a rate hike “might prove necessary,” should inflation “fail to moderate as expected,” though most Fed policymakers still anticipated “a gradual decline in inflation over the next year or two.”
The news unsettled some economists who had believed, from the five-paragraph statement the FOMC issued after its March 20 to 21 meeting, that the Fed was leaning toward a rate cut, Bloomberg News said.
“The Fed won’t entertain easing [interest rates] with inflation this elevated and without clear evidence that it is moderating,” Brian Sack, vice president of Macroeconomic Advisers LLC in Washington, and a former Fed economist, told Bloomberg. “It is hard to see tightening in the near term, but it is also hard to see easing.”
A similar stance was signaled today by the European Central Bank, which left interest rates unchanged at 3.75 percent, Bloomberg News reported. The ECB left a key interest rate unchanged at 3.75 percent, but indicated a June rate hike is likely. The inflation outlook “remains subject to upside risks,” ECP President Jean-Claude Trichet told reporters.
“By central bank standards, that is a very clear message,” Holger Schmieding, chief European economist at Bank of America Corp. in London, told Bloomberg. “It would now take a major surprise in economic data or financial markets to prevent a 25 basis-point hike in June,” to 4.0 percent.
Additional information, including the minutes of the Federal Open Market Committee’s March meeting, is available at www.federalreserve.gov.
