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Wednesday April 13, 07:25
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Fed minutes show less concern about inflation
(by Julia Jenson)
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Minutes of the March 22 Federal Open Market Committee meeting were released yesterday, somewhat soothing concerns about the possible acceleration of rate hikes that had weighed on the market since the hawkish statement issued by the Fed after the meeting. The next Federal Reserve policy-making meeting that is due on May 3 is more likely to lead to a 25 basis points hike than to a 50 basis points increase. Stock prices rose and bond yields dropped after the release of the minutes.
Since the past Fed meeting, economic data have shown the slower economic growth. Gas prices have risen, and this may cause consumers to cut spending further curbing growth. The trade deficit has jumped to $61 billion again, leading economists to dampen their growth forecasts.
The minutes say regarding inflation that ``many participants said that circumstances had changed from those anticipated at the time of the committee’s meeting in early February. In particular, income data and anecdotal information indicated that economic activity had appreciably more forward momentum than previously perceived and that inflation pressures could be intensifying.’’
``While underlying inflation appeared to have moved up only modestly and nearly all participants thought that core and total inflation going forward would be relatively low, they had become less certain of that outlook for the next few quarters,’’ the minutes said.
However, despite the rising inflationary pressures, the Fed policy makers apparently do not feel the need to move towards more aggressive policy tightening.
``Although the required amount of cumulative tightening may have increased, members noted that an accelerated pace of policy tightening did not appear necessary at this time, as a degree of economic slack apparently remained, productivity growth would probably continue to damp increases in unit labor costs and prices, and inflation would most likely be contained,’’ the minutes said.
``In these circumstances, committee members judged that the measured removal of policy accommodation was appropriate for now,’’ they also said.
The minutes that do not identify speakers by name reflected the conviction that oil prices will go down over the year. Since the time of the meeting, prices have dropped to $52 from about $56 at the time of the Fed meeting.
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