Fed Minutes Reveal Some Support for Quarter-Point Cut in May
The outcome of Wednesday's
Federal Reserve meeting wouldn't have been in doubt if the minutes from the previous meeting had been leaked to the market.
The minutes of the May 15 meeting, released today (as always, after the following meeting), showed that three members of the
Federal Open Market Committee supported a mere quarter-point rate reduction in the fed funds rate, which at that time was 4.5%.
The Fed ultimately cut rates by a half-point to 4%, despite one dissenting vote, Kansas City Fed President Thomas Hoenig, who voted to cut rates by just a quarter-point. The other two members, who were not named, ultimately supported the half-point move.
According to the minutes, several members were concerned that the Fed's previous actions would ultimately amount to "excessive monetary stimulus." They also cited several measures showing rising inflation and were concerned about the detrimental effects of cutting rates too quickly.
The minutes do show that the Fed, despite relatively sanguine comments from Chairman Alan Greenspan, has developed a greater concern about a possible inflation problem in coming months. However, the minutes conclude that the FOMC members expect inflation concerns to ease in the months ahead because of the "ebbing of pressures on labor and other resources and associated slack in product markets in a period of continuing subpar economic growth."
The Fed cut rates Wednesday by a quarter point to 3.75% and said yet again that current risks are tilted toward economic weakness.