Federal Reserve policymakers were unanimous in the view last month that their predominant focus should remain on inflation rather than economic weakness.
According to minutes of their deliberations released Wednesday, “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.”
Fed Chairman Ben Bernanke and his colleagues recognized, however, that they were facing conflicting forces given recent economic data showing higher than desirable inflation at the same time that economic growth was coming in weaker than expected.
The Fed at its March 20-21 meeting voted to leave its key interest rate unchanged. The statement released after the closed-door discussions initially triggered a huge rally on Wall Street as investors believed the Fed was signaling that it was considering possible rate cuts if the economy continued to weaken.
Since then, however, Bernanke has made it clear in congressional testimony that the Fed had not changed its bias toward greater concern about inflation than worries about economic growth.
“A persistence of inflation at recent rates could eventually have adverse consequences for economic performance,” the Fed said in its minutes of the March meeting.
The central bank meets again on May 9 and private economists widely believe the Fed will leave its federal funds rate, the interest that banks charge each other, unchanged at 5.25 percent, where it has been since the Fed last raised rates in June 2006.
The minutes showed that Fed officials recognized that they were facing opposing forces.
On one hand, the minutes said, a number of “weaker-than-expected” economic indicators increased the threat that the economy would grow less strongly than had been expected.
But at the same time, the minutes described various inflation readings as “uncomfortably high.”
According to the minutes, Fed officials said the most likely outcome was for the economy to come through its current soft patch with stronger growth later this year with inflation pressures moderating.