WASHINGTON – Most policy-makers at the Federal Reserve (search) in August worried that inflation risks had "ticked up" recently, with some fretting that price increases were already at the upper end of their comfort zone.
"While recent monthly readings indicated that core inflation had been subdued, a number of participants noted that underlying core inflation appeared to be running at a pace around the upper end of the range they viewed as consistent with price stability," according to minutes from the central bank's Federal Open Market Committee (search) meeting on Aug. 9, which were issued on Tuesday.
"Participants commented that an increase in inflation from recent rates could have especially adverse effects on longer-run economic performance," the Fed said.
Still, many members felt that inflation would be kept in check with a policy of steady interest-rate increases, combined with global business competition and the difficulty companies faced in raising prices.
"It appeared that, for now, continued removal of policy accommodation at a measured pace still would likely be sufficient to keep inflation contained, but participants also recognize that the pace and cumulative extent of policy adjustment going forward would depend importantly on economic developments," the Fed said.
At the August meeting the Fed lifted a key interest rate a quarter-percentage point to 3.5 percent, the tenth straight quarter-point rise.
"Even with this action, the federal funds rate would remain below the level that members anticipated would prove necessary to contain inflation pressures and keep output near potential, and thus in all likelihood further policy action would be required," the Fed minutes said.
Fed officials saw high energy prices and a reduction in slack in the economy contributing to higher inflation pressures. They said higher energy costs would likely push up core inflation, which strip out volatile food and energy prices, at least temporarily.
But they also said lofty energy costs were likely to be a "significant drag" on consumer spending and thought household spending would advance at a moderate pace.
In addition, officials expected a widening trade gap and the expiration of special auto sales discounts to lead to softer sales by domestic producers later this year.