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Central Bank Minutes Show Fed Saw Risk in Holding Interest Rate

March 19, 2004|From Bloomberg News

Federal Reserve officials switched from "considerable period" to a pledge to be "patient" in their Jan. 28 statement because the new phrase gives them more freedom to raise the benchmark interest rate "at some point," minutes of the meeting show.

The central bankers voted unanimously at that meeting to leave the overnight bank lending rate at 1%, the lowest since 1958. Minutes of the meeting, released Thursday in Washington, show that the central bankers weighed the possibility that keeping the rate low for too long might eventually spur inflation.

"Members acknowledged that there were risks in maintaining what might eventually prove to be an overly accommodative policy stance," the minutes said. "But for now they judged that it was desirable to take risks on the side of assuring the rapid elimination of economic slack."

Economists said the minutes showed that Fed officials were prepared to raise rates sooner than markets expected. Weak payroll reports since then may have tempered their forecasts for strengthening labor markets.

"They do seem to be uncomfortable with ... their policy," said Christopher Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd.

"We now know that a few members are starting to be impatient."

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