Fed says inflation tame, no need to raise rates soon

Federal Reserve policy makers last month saw an inflation slowdown across the U.S. economy that may persist in the coming months, tempering any need to reverse record-low interest rates. At the same time, the Fed said its pledge to keep the main rate low for an “extended period” wouldn’t keep it from taking action when needed to keep inflation in check, according to minutes of the March 16 Federal Open Market Committee meeting released April 7th. A few officials warned of the risks of increasing borrowing costs too soon.

The inflation outlook, coupled with Fed officials’ concerns about unemployment and long-term joblessness, signals Chairman Ben S. Bernanke and his colleagues are still looking for evidence of a sustained rebound from the worst recession since the 1930s. Fed staff economists reduced their 2010 and 2011 forecasts for inflation excluding food and energy, projections that were already below 2009 rates. “If you expect moderate growth and high unemployment and decelerating inflation, which is still likely to be the best guess at the moment, you won’t be interested in raising interest rates right now,” said former Fed Governor Lyle Gramley, a senior economic adviser at Potomac Research Group in Washington.

At the meeting last month, central bankers left the benchmark federal funds rate target, covering overnight interbank loans, in a range of zero to 0.25 percent, where it has been since December 2008. Fed officials cited the job market, lower home prices and tight credit as restraints on the recovery, the minutes said.

By Scott Lanman
April 7 (Bloomberg) --