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Federal Reserve panel signals rate hike ahead

August 27, 2008|From Bloomberg News

Federal Reserve policymakers agreed this month that their next change in interest rates will be to raise them, while reaching no conclusion on the timing of such a decision, according to minutes released Tuesday.

The Fed's rate-setting panel left the central bank's benchmark lending rate unchanged at 2% at the meeting Aug. 5. It was the second straight meeting with no change after the rate was steadily cut from 5.25% starting last September.

The minutes show a debate over the magnitude of the inflation threat and the effect of the recent slide in commodity prices.

Policymakers also diverged on whether financial turmoil posed a risk of a more severe credit crunch.

With market instability triggering a rise in borrowing costs for households and businesses, "most members did not see the current stance of policy as particularly accommodative," the minutes say.

"Many participants noted that the financial system remained fragile, with some expressing continued concern about the possibility of an adverse feedback loop" in which tighter credit conditions push the housing market even lower, the minutes say.

On the other hand, "a number of participants worried about the possibility that core inflation might fail to moderate next year unless the stance of monetary policy was tightened sooner than currently anticipated by financial markets," the minutes say.

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