At March meeting, Fed panel not unanimous on holding rate Minutes show FOMC would raise target if needed to block inflation


WASHINGTON -- U.S. Federal Reserve policy-makers were divided in holding the overnight bank lending rate steady on March 31, according to the minutes of the meeting.

The Federal Open Market Committee voted 11-1 to leave the federal funds target unchanged at 5.5 percent. Cleveland Federal Reserve Bank President Jerry Jordan dissented, citing a faster- than-expected increase in the money supply that could ,, be an inflation threat.

The FOMC also adopted a stance in favor of raising the interest rate target, if need be, to guard against inflation, as expected. The panel had dropped its so-called bias at their Dec. 16 meeting, amid signs the crisis in Asia would slow the U.S. economy.

"The members agreed that should the strength of the economic expansion and the firming of labor markets persist, policy tightening likely would be needed at some point to head off imbalances that over time would undermine the expansion in economic activity," the minutes, released yesterday, said.

While members commented on the "persistence of unusually favorable economic conditions," the minutes said, "a number questioned how long these conditions might last without a policy adjustment."

FOMC members expressed concern that Asia's economic problems might not slow U.S. growth as much as the Fed had forecast early in the year. The Fed had predicted growth would slow to no more than 2.75 percent in 1998 from 3.8 percent last year.

According to the minutes, the staff forecast prepared for the March 31 meeting "indicated that the expansion of economic activity would slow appreciably during the next few quarters and remain moderate in 1999."

TTC FOMC members, however, "saw little reason to anticipate substantial slowing in the growth of consumer or business expenditures in coming quarters, and they also expected housing activity to be maintained at a relatively high level."

Pub Date: 5/22/98

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