Fed's top concern: inflation

November 23, 2005|Associated Press

WASHINGTON -- Worried that high energy costs could spread inflation throughout the economy, Federal Reserve policy makers this month decided they should keep raising interest rates.

Minutes of the Fed's closed-door meeting on Nov. 1, released yesterday, underscored that policy makers were more concerned about the prospects of inflation than a serious economic slowdown after a trio of hurricanes.

Even though energy prices, which surged to record highs after Hurricane Katrina struck in late August, had moderated by then, ''risks to the outlook for underlying inflation remained a key concern," according to the minutes.

''There was a risk that the large cumulative rise in energy and petroleum product prices through the summer would be transmitted to core consumer prices," the minutes said.

Core prices, which exclude energy and food, are closely monitored by the Fed to get a sense of how a wide variety of prices for goods and services are behaving.

''A number of firms had been reporting a greater ability to pass through increases in energy and other costs to customers, though evidently more so to other businesses than to consumers," the minutes said.

To fend off inflation, the Fed at the November meeting boosted its key short-term rate, called the federal funds rate, by a quarter percentage point to 4 percent. It was the 12th increase of that size since June 2004.