By SUDEEP REDDY
August 27, 2008; Page A2
Most Federal Reserve policy makers expect to see weak economic growth and moderating inflation through the end of the year, suggesting little inclination to raise interest rates in the coming months.
In minutes of their August meeting, however, some Fed officials appeared divided over the degree of the inflation threat and the extent to which financial turmoil is weighing on the economy.
Members of the rate-setting Federal Open Market Committee, which left the central bank's interest-rate target unchanged at 2% at its Aug. 5 meeting, continue to expect their next move to be a rate increase, the minutes said. But they remain uncertain about the extent and timing of such an action, indicating they will take their cue from developments in the economy and financial markets....
But policy makers overall disagreed about the extent of the financial stress. Many officials noted the financial system "remained fragile," with some expressing concern about the risk of tighter credit conditions leading to more losses on housing that in turn could lead to still tighter conditions. Other Fed officials "suggested that risks to the financial system had receded," partly because of new Fed lending facilities. Those officials said credit conditions "were broadly consistent with the typical patterns observed during periods of weak growth or recession."
Policy makers appeared to be divided over the inflation threat. Officials overall "expressed significant concerns" about the risk of higher inflation and the chance of higher inflation readings leading to an increase in the public's expectations for inflation.
Some officials believed inflation risks were diminishing with a weaker economy and lower prices for oil and other commodities. Others worried about a reversal in the current trend of energy prices and found businesses being more successful in passing higher costs to consumers. One of those officials, Federal Reserve Bank of Dallas President Richard Fisher, dissented in the 10-1 vote to leave rates unchanged at the August meeting. He preferred a rate increase, saying inflation pressures were a greater risk to the economy even though the financial system remained fragile and the "sluggish" pace of economic growth could weaken further.
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