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Kandel on the Fed minutes
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May 19, 2000: 12:25 a.m. ET
Policy-makers opt for aggressive rate hike after unanimous modest raise
By CNN Financial Editor Myron Kandel
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NEW YORK (CNNfn) - Just two days after the Federal Reserve raised interest rates half a percentage point as most - but not all - observers were expecting, the Fed released the minutes of its prior meeting, on March 21, showing the thinking of its policy-makers at that time, when they were raising rates by a quarter-point for the fifth time in nine months.
Those minutes showed that even though the vote for a quarter-point was a unanimous 10 to 0, some members of the Fed's policy-making Open Market Committee appeared to be leaning toward a "more forceful" increase of half a point if the economy continued to roar ahead. Looking ahead, the minutes say, the committee would continue to "assess the need for further tightening to contain inflation." And that, of course, was telegraphing the action that was taken this past Tuesday. Some of the words in the March minutes were repeated in the post-meeting announcement of this week's increase.
Even though Fed chairman Alan Greenspan played it close to the vest in his public pronouncements in advance of this meeting, the bond market had clearly priced in a half-point move, and so there very likely was no concern in the Fed's deliberations that half a point would upset Wall Street.
 At the March meeting, some members expressed fears about the "historically elevated valuations of many high-tech stocks," noting that they could be subject to a "sizable market adjustment at some point." That risk, they said, was underscored by the increased volatility of the stock market.
Jumping ahead, in the first public statement by a member of the Open Market Committee since this week's meeting, William McDonough warned that the Fed is not yet sure if this hike would be sufficient to cool down the economy's red-hot growth. McDonough is the president of the Federal Reserve Bank of New York and as such is a permanent member of the committee. His comments were not exactly startling, considering the warnings of possible further tightening that accompanied the Fed's announcement of its half-point increase this week. But they serve to keep the markets prepared for additional increases.
There will be a number of important economic reports before the Fed meets again in late June, notably the employment figures for May, as well as that month's indexes of both wholesale and consumer prices. There is concern that those indexes, quite tame in April, when energy prices declined, will be inflated by the rising price of oil so far this month.
More immediately, though limited geographically to the mid-Atlantic region, the Federal Reserve Bank of Philadelphia's business outlook survey, released on Thursday, showed that in March business activity rose more than expected. That's another sign of a booming economy. However, the survey's price component, which reflects inflation, fell slightly. That's a positive note.
Bottom line, the minutes of the Fed's March meeting contain no surprises, but they do shed some interesting light on its thinking and its members' willingness to keep raising rates until the economy shows some real signs of slowing. And that hasn't happened yet.
(Myron Kandel is CNN's Financial Editor. His column appears every Wednesday on CNNfn.com.) 
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