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Fed says inflation pressures could be intesnifying { April 12 2005 } Original Source Link: (May no longer be active)    http://news.ft.com/cms/s/32ed49ce-ab7d-11d9-893c-00000e2511c8.html http://news.ft.com/cms/s/32ed49ce-ab7d-11d9-893c-00000e2511c8.html Fed concerned about US inflation pressures By Andrew Balls in Washington Published: April 12 2005 19:12 | Last updated: April 12 2005 19:12 Federal Reserve policymakers expressed concern about increased inflation risks at their March meeting, but there was no indication from the minutes of the meeting, released on Tuesday, that the committee is likely to shift to more aggressive rate increases soon. The members of the policymaking Federal Open Market Committee said that, since February, “circumstances had changed from those anticipated”, with incoming data and anecdotal information indicating stronger growth and evidence that “inflation pressures could be intensifying.” “While underlying inflation appeared to have moved up only modestly and nearly all participants thought that core and total inflation going forward would be relatively low, they had become less certain of that outlook for the next few quarters,” the minutes said. But policymakers said that while the “required amount of cumulative tightening may have increased an accelerated pace of policy tightening did not appear necessary at this time,” owing to remaining slack in the economy, still strong productivity and contained wage pressures. Bond prices rose on Tuesday after the minutes were released with the the yield on the 10 year Treasury note falling to a five-week low, below 4.38 per cent. Markets have already priced in the higher inflation data. And at its meeting last month, when the Fed raised the federal funds rate by another quarter point, to 2.75 per cent, it use the accompanying statement to signal increased concerns about inflation. In a long discussion of the inflation outlook, committee members “noted with some concern” the recent elevated readings on inflation in prices of core personal consumption expenditures, the producer price index, and indicators of prices at earlier stages of production, as well as the sizable further increase in energy prices. However, “many participants” stated that they expected total inflation to diminish and any rise in core consumer inflation to be limited. While short-term inflation expectations had moved up, but committee members remained confident that long-term inflation expectations were well-anchored, the minutes said. There was also an extended discussion of the Fed's policy language. The case of those on the committee who favour dropping the assurance that the bank will continue to raise rates at a “measured” pace commonly taken to mean quarter point increments in its policy statement was strengthened by the inflation uncertainty, the minutes indicated. However, the FOMC agreed to keep the assurance, for now, and to stiffen the language of its statement to make clear its judgment that the risks to growth and inflation remained balanced was predicated on ongoing rate increases, the minutes said.

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