Fed May Have Boosted Rates In Part to Satisfy Expectations
WASHINGTON -- Federal Reserve policy makers raised interest rates last month in part because markets expected them to do so, and they figured failure to act might hurt their credibility as inflation fighters, minutes of the meeting suggest.</br></br>The minutes were released on the second of two days of congressional testimony on monetary policy by Fed Chairman Ben Bernanke. Mr. Bernanke repeated his main themes of the previous day: Inflation is at a troubling level but should decline as the economy slows and energy prices stabilize.</br></br>Yesterday, markets lowered to 47%, from 62% Wednesday, the odds the Fed would raise short-term interest rates, now at 5.25%, to 5.5% at its next meeting Aug. 8.</br></br>Policy makers boosted their target for short-term rates in June because of a "deterioration in the inflation outlook," the minutes say. But they also acted to "preserve the decline in inflation expectations" of preceding weeks, which "appeared to be conditioned" on expectations of higher rates.</br></br>Fed officials typically attribute rate actions to economic and inflation developments, not to market expectations. The disclosure in the minutes, released after the customary three-week delay, suggests that based on their economic forecast alone, the decision to raise rates would have been a closer call.