WASHINGTON -- Federal Reserve officials disagreed about how aggressively the central bank ought to move in lifting short-term rates when they met in March.
Members of the Federal Open Market Committee voted 8-to-2 in favor of a tighter monetary policy when they met March 22, according to minutes of the meeting released Friday. The result of the decision was an increase in the federal funds rate to 3.50% from 3.25%.
However, Cleveland Federal Reserve Bank President Jerry Jordan and Richmond Bank President Alfred J. Broaddus dissented and argued for a sharper increase in short-term rates to counter rising inflationary expectations.
"They believed that a more aggressive move would underscore the committee's commitment to fostering sustainable longer-term growth and reduce the risk that a highly restrictive policy might be required at a later date to contain inflation," the minutes said.
The Fed officials generally agreed on the need to move rapidly in raising short-term rates to remove the stimulus the economy was getting from low interest rates. Many members, the minutes said, believed that money market interest rates "would have to rise by a relatively sizable amount from current levels," but the majority settled on a small move at the time.
Federal Reserve Board Chairman Alan Greenspan subsequently acted to raise the federal funds rate to 3.75% on April 17. Another round of tightening came last week, when the FOMC raised the federal funds rate to 4.25%, and the Federal Reserve Board raised the discount rate to 3.5% from 3%.
In their discussions on inflation at the March FOMC meeting, committee members said they were encouraged because many broad measures of inflation, including wages, remained tame. They noted gains in productivity, low oil prices, and competition in many markets from domestic and foreign firms.
However, officials said "warning signs had emerged of the prospect of greater inflation, though perhaps not over the near term." They cited increases in commodity prices, higher prices of materials for some businesses, and wage pressures in the construction industry.
The Fed policymakers also expressed concern that the economy was continuing to expand at a rapid pace, cutting into excess capacity in a way that could generate inflation "before long" in a number of industries.
In addition, the Fed released a record of a telephone conversation among FOMC members on April 18, the day after Greenspan's decision to lift the funds rate to 3.75%. They expressed support for the move, saying broad indicators for the economy "pointed t considerable momentum."
The FOMC officials said "sharp declines in bond and stock prices suggested that speculative excesses had been reduced, and ongoing portfolio realignments probably were shifting long-term financial assets to firmer hands." As a result, they said, financial markets appeared "less likely to overreact" to Fed moves to tighten credit.
