Fed Probably Will Decide to Increase Short-Term Rates, Comments Suggest
WASHINGTON -- The Federal Reserve is likely, in light of November's strong employment figures, to decide to raise short-term interest rates at its policy meeting Dec. 14.</br></br>Interviews with Fed governors and district presidents who make up the central bank's policy committee suggest that many of them believe higher interest rates are needed to cool down the economy and prevent an acceleration of inflation.</br></br>The 463,000-job increase in payroll employment "was far bigger than anyone thought it was going to be," said Robert Black, president of the Federal Reserve Bank of Richmond. The latest numbers add to "anecdotal information from our district that the economy continues to be robust," agrees Cleveland Fed President Lee Hoskins. "There is some sign here that policy should continue to err on the side of containing inflation."</br></br>But the Fed is unlikely to take decisive action before the Dec. 14 meeting unless it is confronted with a steep decline in the dollar. That's because officials are reluctant to appear overly responsive to monthly employment figures. "Taking one month's figures and reacting in a knee-jerk manner is inappropriate for policymakers," says Roger Guffey, president of the Kansas City Fed, expressing a view that was echoed by other Fed officials.</br></br>The presidents of the 12 Fed district banks have been leading the charge this year for a tighter monetary policy. The employment figures out Friday clearly reinforced their hawkish views. "I can't claim I was terribly surprised by the tenor of the report," said Gary Stern, president of the Minneapolis Fed. "The economy out here for quite some time now has been doing well."