Minutes Show Federal Reserve Policy-Makers Believe Interest Rate-Hike Campaign Was Nearing End
Federal Reserve Releases Meeting Minutes
Tuesday January 3, 5:33 pm ET
By Jeannine Aversa, AP Economics Writer
"Views differed on how much further tightening might be required," the minutes said, explaining why changes were made to the Fed's policy statement released after the December meeting.
One of the most important changes was that the Fed dropped language -- contained in previous statements -- that described interest rates as being too low, or accommodative. Economists viewed that as a sign that the Fed was winding down its rate-raising campaign.
Fed Chairman Alan Greenspan and his colleagues decided at the December meeting to boost rates for the 13th time since June 2004 to prevent inflation from flaring up. They noted that the economy was growing solidly and that the labor market had gotten stronger, forces that could lead to a pickup in inflation.
"Although future action would depend on the incoming data, this characterization of the outlook for policy was seen by most members as indicating that, given the information now in hand, the number of additional firming steps required probably would not be large," the minutes stated.
On Wall Street, stocks were buoyed by the Fed's assessment. The Dow Jones industrials surged 129.91 points to close at 10,847.41. The Standard & Poor's 500 index and the Nasdaq composite index also finished higher.
The Fed's action in December left its key short-term rate, called the federal funds rate, at 4.25 percent, the highest in 4 1/2 years. The funds rate is the interest that banks charge each other on overnight loans and is the Fed's main tool to influence economic activity.
The rate increase was part of an 18-month process where the Fed was focused on lifting rates from extraordinarily low levels to more normal ones. Before the Fed embarked on its rate-raising campaign in June 2004, the funds rate had been sliced to 1 percent, a 46-year low, in an effort to help the economy get back on its feet after the 2001 recession, terror attacks and a wave of accounting scandals that rocked Wall Street.
Throughout the Fed's rate-raising cycle, it had pledged in its policy statement to boost rates at a "measured" pace. Economists came to view that as one-quarter percentage point increments. The Fed's 13 rate increases thus far have all been quarter-point hikes.