Fed differed on future rates

WASHINGTON – Federal Reserve officials raised concerns last month that a big jump in energy prices could weaken the economy and unleash inflation, prompting a few to suggest the possibility of tightening credit this year.

Such a move usually involves boosting interest rates, although the minutes from the Fed’s closed-door meeting on March 15 did not specify that. The minutes, which were released Tuesday, also did not note which members raised the prospect of a change in policy, or how many.

It simply noted that a “few members” raised that point. Those members appear to be in the minority.

Another group of Fed members, presumably the majority, said the Fed might need to keep holding interest rates at record low levels beyond this year.

The differing viewpoints about potential policy actions in the future highlight a growing number of uncertainties facing an economy that all the members agreed was improving.

At last month’s meeting, the Fed offered its most optimistic assessment of the economy since the recession. Fed policymakers said the recovery was finally on “firmer footing.” Companies had stepped up hiring and both consumers and businesses were spending more.

Still, the minutes noted that Fed members discussed possible pitfalls, both at home and abroad.

Higher prices for oil, food and other commodities are a major concern. So is unrest in the Middle East and uncertainties stemming from the nuclear and economic crisis in Japan, the world’s third-largest economy.

The Fed last month decided to maintain the pace of its $600 billion Treasury bond-purchase program to help the economy grow at a faster pace and to help lower unemployment. It also left its key interest rate at a record low near zero, where it has been since December 2008.

Those decisions were unanimous.

All the members seemed to agree that widespread disruptions in oil production and a larger jump in energy prices could weaken the economy and spur inflation.

The Fed ultimately agreed with the view stated publicly by Fed Chairman Ben Bernanke, that run-up in oil prices would have only a modest impact on consumer prices.

But a few members “indicated that economic conditions might warrant a move toward less accommodative monetary policy this year,” the minutes stated.

The Fed minutes noted that a number of businesses were passing some of the higher costs for energy and other materials along to their customers by boosting retail prices. Some businesses indicated that they were leery of jacking up retail prices, fearing higher prices would turn off consumers.

Some members were also skeptical about the economic benefit of the bond-purchase program but didn’t think any changes were warranted at the March meeting. The program is intended to invigorate the economy by getting Americans to spend more. It aims to lower rates on loans and to boost stock prices.

Looking ahead, a few members said the Fed might need to either trim the size of the program or slow down its pace if the economy grows more strongly and threatens to spur inflation. Other members didn’t foresee making any changes to the program, which is slated to shut down at the end of June.