2 Dissented in Fed Vote on Bank Lending Rate

Federal Reserve policymakers weren’t unanimous in deciding to hold the overnight bank lending rate steady at their May 19 meeting, a session that exhibited growing division among the nation’s central bankers.

The Federal Open Market Committee voted 10 to 2 to leave the federal funds target unchanged at 5.50%, minutes of the session released Thursday showed, as a deteriorating situation in Asia was offset by a strong domestic economy.

“A number of members indicated that the decision was a close call for them,” the minutes said. Underscoring that point, the FOMC also maintained a stance--or bias--in favor of raising the interest rate target, if need be, to guard against inflation, the minutes showed.

St. Louis Fed Bank President William Poole and Cleveland Fed Bank President Jerry Jordan cast the two dissenting votes. They cited an increase in the money supply and the availability of easy credit, which they view as having the potential to drive up prices. Jordan also dissented from the Fed’s decision to hold rates steady on March 31.

The May 19 minutes suggested that some panelists were concerned about “complacency” among investors toward the level of stock markets, which they said was leading to speculation in real estate and commercial ventures.

On the subject of the broader economy, many FOMC members expressed concern about strong consumer spending. However, they also cited worries that fallout from the economic crisis in Asia could dampen U.S. economic growth, perhaps even more dramatically than they had anticipated.

Also keeping central bankers from pulling the trigger in May was the concern that higher interest rates “could have out-sized effects on the already very sensitive financial markets in Asia,” according to the minutes.

At its latest meeting this week, the FOMC also refrained from raising borrowing costs. Minutes of this week’s session will be released Aug. 20, following the next regularly scheduled FOMC meeting on Aug 18.