Fed: Rate hikes may be needed

WASHINGTON -- Federal Reserve officials concluded last month that higher interest rates could still be needed even as they removed a reference in their policy statement to tighter credit.

"Further policy firming might prove necessary to foster lower inflation," the Fed said in minutes of its open market panel's March 20-21 meeting, released yesterday in Washington. "But in light of the increased uncertainty about the outlook for both growth and inflation, the committee also agreed that the statement should no longer cite only the possibility of further firming."

The minutes contained no hint of a rate cut, which some economists forecast, and suggested that policy makers remained confident that their prediction of an rebound would be borne out.

"What the Fed is telling us in these minutes is that it really has no thoughts at all about easing interest rates at the moment," said former Fed Governor Lyle Gramley, senior economic adviser at Stanford Group Co. in Washington.

Policy makers, who kept their benchmark interest rate at 5.25 percent on March 21, also expressed doubts about their forecast for slowing inflation.

"The latest readings on core inflation were higher than expected, and it was difficult to discern whether the apparent downward trend in core inflation during the past few quarters was continuing," the minutes said.

The Fed's preferred inflation gauge, the "core" personal consumption expenditures price index minus food and energy, has been at or above the top of the comfort zone articulated by at least six Fed officials for almost three years.

The minutes contained stronger suggestions of rate increases than chairman Ben Bernanke's March 28 congressional testimony, in which the chairman said the Fed retained an "inflation bias" and had not moved to a so-called neutral stance.

Since the meeting, policy makers have stressed their concern that inflation remains too high. Richmond Fed president Jeffrey Lacker yesterday became the third official this week to hold out the prospect of higher interest rates, after Fed Governor Frederic Mishkin and Dallas Fed president Richard Fisher Tuesday indicated the central bank may still need to act.