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New Minutes Show a More Fractured Fed

"The risk of inflation remaining too high is greater than the risk of growth being too low," Moskow said in a speech two weeks after the meeting, suggesting more rate increases "may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time."

Richard W. Fisher, president of the Federal Reserve Bank of Dallas, said in speech shortly after the meeting that it is too soon to know whether the central bank will raise rates again. But he echoed Moskow's concern, saying: "Once the perception of having pricing power becomes entrenched, it is difficult to alter. This is a psychological as well as an economic phenomenon. Behaviors become habits, and habits are hard to change."

Moskow and Fisher were not voters at the last meeting, and the minutes give no indication how they might have voted.

Lacker "dissented because he believed that further [credit] tightening was needed to bring inflation down more rapidly," the minutes said.

And he disagreed with Fed staff and policymakers who contend that the current flare-up in inflation is a temporary result of higher energy and import prices. He said "the recent surge in core inflation had persisted and appeared to be broad-based."

He also did not think the economy would slow enough to lower core inflation.

The committee comprises the 12 regional Fed bank presidents and the seven members of the Board of Governors based in Washington -- usually 19 people.

The group's voting members are the board members and a rotating group of five bank presidents. Because there are two vacancies on the board, there were 17 members present, 10 of whom voted at the last meeting.

The decision to pause "was a much closer call than I thought," said Richard Yamarone, director of research at Argus Research Corp. The "hawks," the members who are more worried than others about inflation, "had their wings clipped because they're not all voting this year."

The minutes show that most committee members shared the chairman's optimism that "inflation pressures quite possibly would ease gradually over coming quarters" as the economy slows. They were content to leave their benchmark rate unchanged at 5.25 percent and even thought they might be done raising rates.

Stocks and bonds rallied after the minutes were released, in part because they also revealed that the Fed staff has lowered its forecast for economic growth over the next 18 months to below a 3 percent annual rate -- potentially bolstering the case for not raising rates any higher.

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