In May, at Least, a Key Fed Panel Opposed Rate Cuts

Federal Reserve policy-makers concluded in their May meeting that inflation posed too great a danger to allow interest rates to decline, minutes of the meeting released Friday show.

The 8-week-old records were made available amid signs that the policy-makers had decided at their most recent gathering on Monday and Tuesday to shift their policy and stand ready to nudge interest rates lower if the economy weakens further.

Unidentified government officials were quoted by the Wall Street Journal on Friday as saying they believed that the directive adopted earlier this week allows a relaxation of the tight credit policy if additional signs of economic sluggishness emerge.

Analysts were split over whether the June employment report released Friday by the Labor Department provided such evidence. The unemployment rate slipped to 5.2% from 5.3%, but non-farm job growth was a weaker-than-expected 40,000.

In May, members of the Federal Open Market Committee voted 10-1 to maintain the existing credit policy and directed central bank officials to be equally ready to raise or lower rates, depending on developments on inflation and economic growth.

Members agreed that “current information on business conditions pointed on balance to relatively moderate but sustained economic expansion.” At the same time, the members “generally agreed that the prospects for significant reductions in inflation pressures during the quarters immediately ahead were not promising.”

Lee Hoskins, president of the Federal Reserve Bank of Cleveland and a prominent advocate of a tough anti-inflation policy, voted against the directive. He argued for a tighter credit policy “to help assure that progress would be made toward a reduced rate of inflation.”

Hoskins said tighter credit would “enhance the credibility and effectiveness of monetary policy in countering the persisting strength of inflationary pressures,” according to the minutes.

Other members, who were not identified, went along with the directive but said “the need to contain and ultimately to reduce inflation might well require a firming of policy at some point.”

The Federal Reserve has been fighting inflation with higher interest rates since early 1988. In mid-1989 it began nudging rates down amid concern the economy might topple into a recession.

However, since late December, the Fed has held steady.