Print

Mail

wiki links

Fed hints that rate hikes may end soon

The US Federal Reserve has begun to debate when to halt a long-running campaign of US interest-rate hikes, according to minutes of the central bank's last meeting released on Tuesday.

The meeting's minutes showed that members of the Fed's Open Market Committee (FOMC) believed the US economy had largely shrugged off the impact of deadly hurricanes, leaving higher inflation as a bigger threat to the economy.

At its meeting on Nov. 1, the FOMC chaired by Alan Greenspan voted unanimously to boost the benchmark federal funds rate by a quarter point to 4.0 percent.

The rate now stands at its highest point since June 2001, after 12 successive hikes designed to get US monetary policy back to a more "neutral" level after a 2001 recession drove rates to historic lows.

But the minutes showed that for the first time since the rate-hike program began last June, FOMC members questioned how much further borrowing costs should be restricted.

"Some members cautioned that risks of going too far with the tightening process could also eventually emerge," the document said.

FOMC members noted that future rate hikes "would need to be increasingly sensitive to incoming economic data."

As in previous meetings, the FOMC said on Nov. 1 that it would proceed at a "measured" pace in removing low-rate "accommodation" from the economy, suggesting more rate hikes to come.

"Participants expressed a variety of perspectives about how the policy statement issued at the end of FOMC meetings might evolve over time," according to the minutes.

"Several aspects of the statement language would have to be changed before long, particularly those related to the characterization of and outlook for policy," they said.

The US dollar fell and New York share prices closed up after the minutes' publication, as investors began to bet that the Fed might be close to ending its campaign of rate increases.

The minutes "appear to be the vehicle the FOMC has chosen to signal that policy has moved into the neutral zone," Nomura US chief economist David Resler said.

Most analysts expect at least two more rate hikes by the Greenspan Fed before the chairman steps down at the end of January to cap more than 18 years as the world's most powerful central banker.

Analysts say the future course for the Fed remains murky under its chairman-designate, top White House economist Ben Bernanke, who is awaiting Senate confirmation as Greenspan's successor.

"Incoming Fed chairman Bernanke would probably welcome a shift that affords him the greatest flexibility to set the policy course in his first months on the job," Resler said.

Risks to US economic growth include an exploding trade deficit and a property-market bubble, which some observers fear is set to burst.

The Fed minutes said the housing market remained robust, but they noted that slowing house price gains and a drop in home equity loans could signal "that the long-expected cooling in the housing market was near."

The FOMC noted the economic dent caused by Hurricane Katrina in late August and another two powerful storms in September, especially to the US energy industry.

But the committee also noted that businesses were now finding it easier to pass rises in prices of energy and other inputs onto their customers.

"On balance, meeting participants remained concerned about heightened inflation pressures," the minutes said, describing economic growth of 3.8 percent in the third quarter as "fairly strong."

The committee next meets on Dec. 13.
This story has been viewed 1750 times.