Rate-Hike Worries at the Fed

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.

Minutes of the Fed’s closed-door meeting on March 27 and 28 -- Ben S. Bernanke’s first as chairman -- were released Tuesday and provided insight into policymakers’ thinking as they tried to determine 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.

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%, the highest rate in five years. That rate, which is the interest that banks charge one another on overnight loans, affects other rates charged to consumers and businesses.

In taking that action, the Fed also left open the door to another 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 that 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 that the Fed will bump up rates at its next meeting May 10. Some economists believe that could be the last rate hike. But others say the federal funds rate could rise as high as 5.5% this summer before the Fed stops. In either scenario, economists predict the rate-raising campaign will end this year.