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Fed voted 9-1 for rate rise
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August 26, 1999: 5:35 p.m. ET
FOMC almost unanimous on June decision to raise rates, minutes reveal
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NEW YORK (CNNfn) - Federal Reserve policy makers were almost unanimous in their decision to raise short-term interest rates at their June meeting, though divided on whether to drop their bias toward higher rates, minutes of the meeting released Thursday revealed.
Members of the Federal Open Market Committee voted 9-1 to raise the so-called fed funds rate -- the target interest rate at which commercial banks lend to each other overnight -- a quarter point to 5 percent, the first rate rise in more than two years, minutes of the June 30 meeting revealed. The FOMC raised the trend-setting rate again Tuesday to 5.25 percent.
In the view of most members, a quarter-point nudge in short-term lending rates represented "a desirable and cautious preemptive step" in the direction of reducing what they saw as a significant risk of rising inflation, the minutes said.
While the policy makers agreed that no material evidence of inflation had surfaced at the time, robust growth, strong employment and wage gains and persistent strength in domestic demand suggested "a small preemptive move at this time would provide a degree of insurance against worsening inflation later."
The committee is allowed 12 members -- including seven members of the Fed's board of governors, the president of the Federal Reserve Bank of New York and four rotating seats for the presidents of the 11 other Reserve Banks. However, only 10 members voted at the June 30 meeting. Fed Vice Chairman Alice Rivlin resigned as of July 16. At the time, the administration had not appointed a replacement for former Governor Susan Phillips, who resigned 18 months earlier.
Divided on bias
FOMC members were divided over whether to adopt a so-called neutral bias, which is supposed to tell financial markets and the public which way the Fed is leaning on future rate changes, the minutes said. Indeed, some members were concerned a bias shift to neutral might suggest the central bank was finished raising rates, which it obviously was not.
"They saw the odds as reasonably high that further
tightening would be needed before the end of the year to gain adequate insurance that inflation would be contained,'' the minutes said.
In the end, the FOMC members agreed to the bias change because they would be able to explain it in their rate change announcement and because Fed Chairman Alan Greenspan could "correct possible misinterpretations" in his Humphrey-Hawkins testimony to Congress.
As for the rate rise itself, only one FOMC member dissented against a rate rise -- Dallas Fed Bank President Robert McTeer, saying that higher rates weren't needed to contain inflation, according
to the minutes.
"Mr. McTeer does not believe that rapid growth based on new technology, rising productivity and other supply-side factors is inflationary, especially in the current global economy," the minutes said. "He would have preferred to continue to test the growth limits of the new economy.''
Minutes from Tuesday's meeting will be released on the Thursday following the next FOMC meeting, which is scheduled for Oct. 5.
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