updated 4/19/2006 4:15:56 PM ET 2006-04-19T20:15:56

Although most Federal Reserve policymakers last month believed that the end of the central bank’s nearly two-year rate-hike campaign was probably close at hand, some raised concerns about the potential dangers of the Fed pushing up rates too high, which could crimp the economy.

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Minutes of the Fed’s closed door meeting on March 27-28 — Ben Bernanke’s first as chairman — were released Tuesday and provided insight into policymakers’ thinking as they grappled with what might be the appropriate time for the central bank to bring its credit tightening campaign to an end.

“Most members thought that the end of the tightening process was likely to be near,” according to the minutes.

On Wall Street, the Fed minutes buoyed investors and sent stocks soaring . The Dow Jones industrials were up nearly 170 points in afternoon trading.

But the document hinted at the difficulties in assessing the situation. If the Fed waits too long, economic activity could be hurt. If it stops boosting rates too soon, inflation could get out of control.

“Some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy,” the minutes said. The Fed’s rate increases — which started in June 2004 — can take months to work their way through the economy.

“However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance,” the minutes stated.

At the March meeting, the Federal Reserve — in a unanimous vote — decided to boost its federal funds rate by one-quarter percentage point to 4.75 percent, the highest in five years. This rate, which is the interest that banks charge each other on overnight loans, affected other rates charged to consumers and businesses.

In taking this action, the Fed also left open the door to another interest rate increase to fend off inflation.

“The committee judges that some further policy firming may be needed,” the Fed said in a statement released after the March meeting.

The minutes showed that some policymakers had some reservations about including this language in the March statement.

“Some members expressed concern that retention of the phrase ‘some further policy firming may be needed’ .... could be misconstrued as suggesting that the committee thought that several further tightening steps were likely to be necessary,” the minutes said.

Many economists believe the Fed will bump up rates again at its next meeting on May 10. Some economists believe this could be the last rate hike. But others believe the funds rate could rise as high as 5.50 percent this summer before the Fed stops. In either scenario, economists predict the Fed’s rate-raising campaign will end this year.

The minutes also said that Fed policymakers had mixed thoughts about just how much information should be imparted through the policy statement released after the March meeting.

“Members expressed some difference in views about the appropriate level of detail to include in the statement,” according to the minutes.

In the end, policymakers in that statement opted to note that economic growth in the January-to-March quarter had rebounded nicely from an end-of-year lull. Policymakers also pointed out that they believed economic growth would probably moderate in the quarters ahead.

Policymakers at the March meeting — as in the previous meeting on Jan. 31 — indicated that interest rate decisions could become less predictable, relying more heavily on incoming barometers about economic activity and inflation.

Separately, Janet Yellen, president of the Federal Reserve Bank of San Francisco, in a speech Tuesday, said among the things she’ll be monitoring closely is the impact the slowing housing market will have on consumer spending and thus overall economic activity.

“While I expect the housing sector to slow somewhat, I will be highly alert to the possibility of the policy tightening going too far,” she said. “So, I’m watching the data for comfirmation of my forecast and for surprises that would make me alter my forecast.”

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