Fed Was Poised at Meeting for Rate Increase

Federal Reserve policymakers remained poised last month to raise short-term interest rates, despite the “very small but growing possibility” that Asia’s slump would trigger a major U.S. stock market upset and economic downturn. Minutes of the Federal Open Market Committee’s two-day meeting showed the policymakers voted 10 to 1 on July 1 to leave the benchmark rate on overnight loans between banks unchanged at 5.5% but to bias monetary policy in favor of raising rates. That meant policymakers believed the next change in rates, when it occurred, was more likely to be an increase than a decrease. A number of policymakers “believed that the committee should take advantage of any early opportunity to tighten policy in order to improve the prospects of containing inflation and prolonging the economic expansion.” But the panel decided against an immediate change in rates, with some members “suggesting the consequences [of spillover from Asia] were likely to be more severe and longer lasting than they had anticipated earlier.” The policy panel met again Tuesday and indicated afterward it had decided against any immediate change in interest rates.