Fed voted to change wording in January to gain flexibility
WASHINGTON -- Federal Reserve policy makers were unanimous in believing at their January meeting that they should scrap a pledge to keep interest rates low for ''a considerable period" in favor of wording that would increase their flexibility, according to minutes of the discussion released yesterday.
The Federal Open Market Committee, the group of Fed board members and regional Fed bank presidents who set interest rates, split, however, on what should replace the ''considerable period" language.
The Fed had employed that phrase since last August to reassure financial markets that the central bank would not be quick to start raising interest rates.
The minutes said the majority favored replacing ''considerable period" with a pledge to remain ''patient" before raising interest rates, given the fact that inflation pressures remained very low and there was continued slack in labor markets.
A minority of Fed officials favored not replacing the ''considerable period" language with any kind of pledge, arguing that any ''replacement language would tend to shape expectations in ways that could complicate the conduct of policy," the minutes said.
This minority group also believed that with the economy in a ''strong uptrend," there was no longer a need for pledges that the Fed would continue to supply cheap credit for some time to come.
However, the group favoring a commitment to being ''patient" won out and that pledge showed up in both the Jan. 28 Fed statement and in the statement issued after the most recent meeting, on Tuesday.
The Fed minutes revealed that the central bank also discussed how it communicates its decisions to the public.
The discussion focused on a report prepared by a working group the Federal Reserve set up to study the issue after Greenspan and his colleagues were accused of misleading financial markets last spring with talk about the remote threat posed by possible deflation, a sustained fall in prices not seen since the Great Depression.
