Federal Reserve policy makers, questioning their forecast that inflation will recede, revived the prospect of interest-rate increases.
Records of the Fed’s meeting last month, released yesterday, said officials agreed tighter credit may “prove necessary”. Those words, similar to the language used by the central bank since August, were absent from the five-paragraph statement on March 21, leading some economists to predict a cut.
The minutes didn’t refer to lower borrowing costs and said the risk had increased that inflation wouldn’t slow as the Fed has forecast. The Fed’s preferred inflation gauge rose to a five- month high in February, while signs of economic weakness have spread to areas such as business investment.
“The Fed won’t entertain easing with inflation this elevated and without clear evidence that it is moderating,” said Brian Sack, vice president of Macroeconomic Advisers LLC in Washington. “It is hard to see tightening in the near term, but it is also hard to see easing.”
Sack, a former central-bank economist who has conducted research with Fed Chairman Ben S. Bernanke, forecasts no change in the benchmark rate this year or next.
Bernanke and his team voted unanimously at the meeting to leave the target for the overnight lending rate between banks at 5.25 percent, where it’s been since the Fed ended a two-year run of increases in August.