Global Turmoil Swayed Fed’s Stance

Increasing worry about the global financial crisis prompted Federal Reserve policymakers in August to abandon their policy tilt toward higher interest rates to guard against inflation, adopting a so-called neutral bias, according to minutes of their August meeting. The Federal Open Market Committee voted 10 to 1 at its Aug. 18 meeting to leave the federal funds target unchanged at 5.50%, according to the minutes. Jerry Jordan, president of the Federal Reserve Bank of Cleveland, dissented, citing strength in consumer demand. It was Jordan’s fourth dissent. “While inflation risks were still a concern, given the high level of output and strong domestic demand, the uncertainties bearing on the economic outlook remained substantial, and, indeed, the risks on the downside seemed to have increased appreciably further,” the minutes said. Additionally, “even more serious disruptions in Asia could not be ruled out and would have important implications for the U.S. economy.” The minutes also disclosed that the FOMC held a telephone conference call on Sept. 21 to discuss “developments in domestic and international financial markets and their implications for the U.S. economy.”