WASHINGTON – Continuing concerns about inflation underpin the Federal Reserve's stand against changes in interest rates.
That line of thinking prevailed as the policymakers decided to hold the rates steady last month despite a competing concern that the housing slump might short-circuit the economic expansion.
Anguish over inflation held sway at the June 27 meeting of monetary policymakers — as it has at previous sessions — according to minutes of the closed-door June 27-28 deliberations, released Thursday. This record shows that their "predominate concern" continued to be whether inflation would fail to recede as anticipated.
Fed Chairman Ben Bernanke and his central bank colleagues noted there have been some improvements on underlying inflation readings but this was "not seen as convincing evidence that the recent moderation of core inflation would be sustained," according to the Fed minutes. Core, or underlying, inflation excludes volatile energy and food prices, and is closely monitored by the Fed.
High food and energy prices, meanwhile, have boosted the overall inflation rate, making Fed officials wonder whether that would affect the mindsets of consumers, businesses and investors, which in turn could make them act in ways that could aggravate inflation. Some policymakers said that posed "some risk of a deterioration in inflation's expectations."
Fed members continued to believe that the economy would make its way safely through the housing slump.
After five-boom years, the housing market went bust last year, causing a major drag on overall economic activity.
The economy barely budged in the first three months of this year, growing at a pace of just 0.7 percent, the slowest in more than four years. Fed policymakers, however, were hopeful a rebound would take place.
"Although the housing market remained a key source of uncertainty about the outlook, Fed members thought it most likely that the overall economy would expand at a moderate pace over coming quarters," the minutes said.
Against this backdrop, these policymakers felt comfortable leaving a key interest rate at 5.25 percent, where it has stood for just over a year. Many economists believe the Fed will leave rates where they are for the rest of this year.
Fed policymakers at the June meeting continued to explore ways to improve their communications with Wall Street and Main Street. The Fed officials are examining the statements released after each of their eight meetings a year to discuss interest rate policy, minutes of their meetings and their twice-a-year economic projections, the minutes said. No decisions were made about any possible changes.