Fed Governors Signal More Rate Hikes
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WASHINGTON – New management, same result.
The Federal Reserve yesterday ushered in the Ben Bernanke era the same way it ended the Alan Greenspan era, with a quarter-point boost in official interest rates, the 15th straight increase of that size.
Policymakers also signaled their willingness to raise rates again in May and perhaps beyond to ward off possible inflationary pressures.
The Federal Open Market Committee, as universally expected, voted unanimously to raise its federal funds target by 25 basis points to 4.75%, its highest level since April 2001. It raised the largely symbolic discount rate by 25 basis points to 5.75%, by a vote of 6-0.
In a Dow Jones Newswires and CNBC poll earlier this month, all 21 major banks and brokerage firms surveyed said they expected a Fed funds rate hike of that magnitude.
Possible increases in “resource utilization” and elevated energy and commodity prices “have the potential to add to inflation pressures,” the FOMC said, largely repeating its statement following the January 31 FOMC meeting.
Against that backdrop, policymakers said “some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance” – repeating the assessment they made in January under Mr. Greenspan. They also repeated that they’ll respond to changes in the economy “as needed.”
“A reasonable interpretation is they’re going to go again in May unless the numbers make a compelling case against,” the chief U.S. economist at JPMorgan Asset Management, Anthony Karydakis, said.
“They don’t see any reason to water down their message,” he added.
Mr. Bernanke’s inaugural policy statement as Fed chairman “is almost a carbon copy of January’s,” observed Christopher Rupkey of Bank of Tokyo-Mitsubishi.
That Mr. Bernanke stuck largely to Mr. Greenspan’s script wasn’t surprising. After all, FOMC statements represent a consensus view of all policymakers, and injecting new elements at Mr. Bernanke’s first meeting risked appearing heavy-handed.
Mr. Bernanke “was not in a position to impose [his views], but it could very well be that he overhauls the whole structure” of the statement at some point, Mr. Karydakis added.
Some Fed watchers said the FOMC minutes, which will be released in three weeks, contain considerably more information on the Fed’s thinking.
