WASHINGTON -- The Federal Open Market Committee voted 10-to-2 to adopt a policy bias toward raising short-term interest rates to fight inflation when it met on May 18, according to minutes of the meeting released Friday.
A majority of the committee also agreed that Federal Reserve Chairman Alan Greenspan could raise rates only after consulting with the rest of the committee, the minutes say.
Normally, such a policy bias would authorize Greenspan to raise the federal funds rate by as much as 50 basis points at his discretion. Greenspan made the original suggestion that he consult with other committee members before acting, the minutes say.
"If a policy tightening action were not needed, an asymmetric directive would nonetheless underscore the committee's concern about recent inflation readings and its judgment that a policy to encourage progress toward price stability would promote sustained economic growth," the minutes say.
The minutes confirmed news reports following the May meeting that the 12-member committee, made up of the seven Fed governors and five regional Fed bank presidents, did vote for a bias toward tightening after many months of neutrality.
"In the view of the majority of members, wage and price developments over recent months were sufficiently worrisome to warrant positioning policy for a move toward restraint should signs of intensifying inflation continue to multiply," the minutes say.
Fed Governor Wayne Angell dissented, calling for an immediate tightening of short-term rates because indications of higher inflation persisted and "inflation psychology" had deteriorated. the minutes say. He voted for an immediate tightening at the previous meeting in March along with Fed Governor Lawrence Lindsey.
However, the majority of the committee said recent signs of higher inflation did not rule out the possibility that inflation would calm back down in the months ahead, the minutes say. These members also noted that growth had slowed in recent months, the minutes say.
Edward Boehne, president of the Philadelphia Fed bank, was the other dissenter, the minutes say. He was "concerned that adopting a biased directive might prove to be an overreaction to temporary factors," the minutes say.
The FOMC also met on July 6 and 7. The minutes from that meeting will be released Aug. 20, the Friday after the committee's next meeting on Aug. 17.
More may be revealed about last week's FOMC meeting on Aug. 20, when Greenspan is scheduled to deliver his semiannual Humprey-Hawkins testimony to Congress regarding the state of the economy.