FOMC
Thursday April 2, 2:35 pm Eastern Time
Feb FOMC voted 12-0 to keep U.S. rates steady
WASHINGTON, April 2 (Reuters) - Federal Reserve policymakers in February decided to keep
rates steady but to be prepared to move quickly if the economy was threatened because the outlook
was so uncertain.
By a 12-0 vote, members of the policysetting Federal Open Market Committee voted at the
conclusion of a Feb 3-4 meeting to maintain a symmetrical policy that would leave them free to raise
or lower rates as necessary.
''While a number of members expressed the view that the next policy move was likely to be a
tightening action and one member saw a greater probability of an easing action, the uncertainties
were sufficiently great to warrant remaining sensitive to the need for a policy change in either
direction,'' the minutes of the FOMC meeting said.
Fed policymakers met again on Tuesday this week and left the key overnight Federal Funds rate
unchanged at 5.5 percent. Minutes of the FOMC meetings typically are released with a one-meeting
delay.
In February, FOMC members said the economy was performing well and that the near-term
outlook was for subdued inflation and steady growth. But they also indicated a high degree of
uncertainty about prospects.
''Over a longer horizon, the range of possible outcomes was unusually wide, and the direction that
policy would need to move to promote sustained expansion and damped inflation was unclear,'' the
minutes said.
The economy began 1998 with considerable momentum and scant signs that growth was moderating
from ''an unsustainable rate.'' But the FOMC members nonetheless felt ''appreciably slower''
economic growth was likely in the year ahead.
A key uncertainty for the United States was the extent to which the U.S. trade balance will suffer
because of Asia's economic woes, the FOMC members felt. So far, the effects were quite limited
but there were reports coming in from producers of agricultural, lumber and wood products of
cancellations or postponements of orders from Asian customers.
''Many emphasized that the prospects for declining net exports as a consequence of the dollar's
appreciation and the crisis in a number of Asian economies were a key factor in the outlook for
some slowing in the expansion,'' the minutes said.
The FOMC members also felt a rapid build-up in inventories during 1997 was likely to moderate
this year.
The outlook for inflation was described ''quite tentative'' but with some warning signs from
increasingly tight labor markets and faster increases in labor compensation.
In addition, some factors that have kept price increases moderate, like declining oil prices, a rising
dollar and restrained increases in health insurance costs ''were not likely to continue to exert benign
effects on inflation as time went on,'' the minutes said.
FOMC members said rising consumer spending was the key factor sustaining national economic
growth and noted it was supported by buoyant job opportunities, increasing incomes and stock
market gains over the past several years.
Looking ahead, FOMC members said high levels of confidence and favorable interest rates
suggested continuing, though likely diminishing, strength in consumer spending and business
investment.
''The members acknowledged that their forecasts were subject to a great deal of uncertainty since
there was little precedent to guide them in their evaluation of the extent and likely effect of the Asian
market turmoil,'' the minutes said.
In that circumstance, the FOMC members said they would be ready to ''respond promptly'' to any
developments that threatened the economy's continued expansion.
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