The Federal Reserve's policy-making body voted in February to maintain the neutral stance with regard to money and credit growth that it had held since abandoning its easing policy in January, according to minutes released yesterday.
The Federal Open Market Committee concluded during its Feb. 12-13 meeting that money growth at the upper end of the targets for the three money aggregates "may be appropriate" in the long run, but all 12 members present wanted to maintain current reserve positions in the shorter term. They also said that "modest increases in reserve pressures would be sought" if growth in M1, the narrowest of money measures, rose much above 8 percent and the other two aggregates went above 10 percent or 11 percent.
The minutes mostly served to confirm what Board of Governors Chairman Paul Volcker told Congress in late February: The central bank, unsure about which way the economy is headed, wants to be neither too loose nor too tight. Analysts suggested that there is little reason to suspect that the most recent FOMC meeting, which occurred last Tuesday, would produce a significantly different conclusion.
"The economy is giving off mixed signals," said Ben E. Laden, vice president and chief economist for T. Rowe Price in Baltimore. "There's more uncertainty about the outlook than usual. The Fed, like everyone else, is unsure."
"I think they did nothing in the way of changing policy. My guess is it was pretty much of a standoff," said William E. Gibson, chief economist for RepublicBank Corp.
On the one hand, the various measures of the money supply overseen by the Fed are running above or at the high end of their target ranges. Eventually, too-fast money growth raises fears of inflation. On the other, the "real" economy -- production and employment -- is looking rather weak. Until the Fed can determine which is the actual trend -- the most recent figures show growth may be picking up -- board-watchers think it will have little choice but to wait for more evidence.
"It's unusual to have money growth so rapid in relation to this slow pace of nominal gross national product at this point in the expansion," said Allen Sinai, senior vice president of Shearson Lehman American Express.
The minutes said members of the FOMC, made up of the seven board governors and six of the 11 regional bank presidents, expected money growth to slow somewhat and some of them did not rule out the "possible need for some modest firming over the weeks ahead."