Wednesday, May 30, 2007

Minutes Of Fed Meeting Show Members Remain Concerned About Inflation, Wednesday, May 30, 2007 3:20:49 PM

Wednesday afternoon, the Federal Reserve released the minutes of the Federal Open Market Committee`s May meeting, showing that the risk that inflation would fail to moderate as desired remained the FOMC`s predominant concern.

The minutes showed that all the committee members favored leaving interest rates unchanged, as recent developments were seen as supporting the view that keeping the target for the federal funds rate at 5.25 percent was likely to foster moderate economic growth and a gradual ebbing in core inflation.

While the committee members continued to believe that the risks to economic activity are weighted to the downside, the minutes showed that the members determined that the downside risks have diminished slightly.

Nonetheless, the minutes showed that the members remained concerned that the housing market correction could have a more pronounced impact on consumer spending than currently expected, especially if house prices were to decline significantly.

As mentioned above, however, the committee members continued to believe that inflation remains the primarily policy concern, with nearly all of the members agreeing that core inflation remains uncomfortably high and needs further moderation.

The members all agreed that the risks to the anticipated moderation in inflation were to the upside. Some noted that there could be significant costs if inflation fails to moderate, particularly if it led to an upward drift in inflation expectations.

Still, while the members agreed that the accompanying statement should continue to say that inflation remains the predominant policy concern, they agreed that the statement should also say that future policy adjustments would depend on the evolution of the outlook for both inflation and economic growth.

The members of the Federal Open Market Committee have voted to leave interest rates unchanged since June of 2006, when rates were raised for the 17th consecutive time to the current level of 5.25 percent.

The FOMC is scheduled to make its next decision on interest rates after a two meeting ending June 28. Most analysts expect the committee members to vote to leave rates unchanged once again.
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