*DJ FOMC May Minutes: Upside Inflation, Downside Econ Risks
*DJ FOMC:Debate Ranged From No Fed Funds Change To 50BP Hike
*DJ FOMC: Rise In Price Expectations 'Worrisome' But Small
*DJ FOMC: Inflation Expectations Warrant 'Close Monitoring'
*DJ FOMC: Staff Forecasts Inflation To Slow Later In '06
*DJ FOMC: Unsure How Much 'If Any' More Tightening Needed
*DJ FOMC: Lagged Rate Impact On Housing Could Be Larger
*DJ FOMC: Lower Dollar Could Add To Inflation Pressures
DJ FOMC May Minutes: Upside Inflation, Downside Econ Risks
By Brian Blackstone
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--In what appeared to be a wide-ranging discussion of the monetary policy outlook earlier this month, U.S. Federal Reserve officials concluded that there were both upside risks to inflation and downside risks to economic growth, according to the minutes of the May 10 meeting of policymakers released Wednesday.
While the Federal Open Market Committee minutes stated that the discussion ranged "from leaving the stance of policy unchanged...to increasing the federal funds rate 50 basis points," officials unanimously decided to stick with a 16th straight rate increase of 25 basis points on May 10, pushing the federal funds rate to 5%.
"Given the risks to growth and inflation, Committee members were uncertain about how much, if any, further tightening would be needed after (the May 10) action," according to the minutes of the FOMC meeting.
FOMC members "expressed some concern" about "upside risks" to inflation, according to the minutes, and judged that rising inflation expectations "warranted close monitoring." Still, officials concluded that "while worrisome," the rise in inflation expectations "was relatively small" and "could well reverse before long."
Thus, officials decided to characterize price expectations as "contained" in the FOMC's May 10 statement, as they had in previous policy statements.
Reflecting the conflicting signals arising from recent economic data, Fed officials observed at the same time that they "also saw downside risks to economic activity." The lagged effect of previous rate hikes on housing could be larger than expected, the minutes noted.
"Still, it seemed most likely that, with modest further policy action, including a 25 basis point firming (on May 10), growth in activity would moderate gradually over coming quarters, pressures on resources would remain limited, and core inflation would stay close to levels experienced over the past year," the minutes stated.
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