Wall Street declined Wednesday following the release of Federal Reserve minutes from last month's meeting showing policymakers were unanimous in the view that inflation, not economic weakness, was their major worry.
Minutes showed that Fed Chairman Ben Bernanke and his colleagues even discussed the possibility that future increases in interest rates might be needed to combat higher inflation. The Dow Jones industrials lost 102.80 points to 12,471.05; the Nasdaq composite index fell 22.34 to 2,455.27 and the S&P 500 index dipped 10.91 to 1,437.48. Fed officials recognized they were facing opposing forces, setting a number of "weaker-than-expected" economic indicators against various inflation readings described as "uncomfortably high", but "all members agreed the statement should indicate that the committee's predominant policy concern remains the risk that inflation will fail to moderate as expected." However Fed officials see as the most likely outcome for the economy to come through its current soft patch with stronger growth later this year and moderating inflation pressures. The Fed has held benchmark borrowing costs steady at 5.25% since last June after 17 consecutive quarter percentage-point rises. Fed officials have stressed that core inflation, which has edged up to an annual rate of 2.4% according to a personal spending index favored by the central bank, remains higher than they want but should moderate in a sluggish economy. The minutes also stated that "the committee agreed that further policy firming might prove necessary to foster lower inflation". The minutes said Fed officials believed that given the increased uncertainty about growth, "the statement should no longer cite only the possibility of further firming." The Fed next meets May 9. Private economists believe the Fed will leave its federal funds rate, the interest that banks charge each other, unchanged at 5.25%. The view is that the Fed will not consider cutting rates until inflationary pressures ease further. Even though housing and manufacturing are in serious slowdowns, that weakness is not expected to threaten to derail an expected rebound in growth this year.