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Ironically, the Fed's get-tough stance came just hours after a Commerce Department report showed that the "core" rate of inflation (the Consumer Price Index with volatile food and energy prices omitted) had fallen to an annual rate of 2.4% in April, down from 4.8% in March. That led Senator Tom Harkin, an Iowa Democrat, to denounce the FOMC increase as "clearly excessive" at a time when "accelerating inflation is not apparent." If this continues, says Harkin, "our economy is going to bleed to death." In other words, the Democrats need a slowing economy in an election year like...
Last week's hawkish increase marked a clear departure from the gradualist policies that Greenspan had championed for years. "Three years ago," recalls former Fed vice chairman Alice Rivlin, "some [FOMC] members were worried about the economy overheating. But I wasn't, and neither was Greenspan." Both argued that technology was making workers more productive and stifling inflation. The FOMC thus opted for a string of small rate hikes that became a hallmark of Greenspan's cautious approach to monetary policy...
...stubbornly strong growth convinced Robert McTeer, president of the Federal Reserve Bank of Dallas, that larger rate increases may be appropriate this year. McTeer, whose voting term expired last December, had been the only panelist to dissent from Fed tightening in 1999. "I believed, unlike some others, that productivity gains were keeping inflation sufficiently in check," McTeer says. "But as we moved into 2000, the signals from the economy were fairly clear cut. There was little question in anyone's mind that inflationary pressures were building...
...there much doubt on Wall Street about what the Fed panel was planning. Just two weeks ago, Robert Parry, the president of the Federal Reserve Bank of San Francisco and a voting member, strongly hinted at the outcome by declaring in a speech "We have moved cautiously, but that doesn't mean we only have a single note to play...
...meeting commenced, as all do, with the approval of the minutes of the last gathering--this is a government bureaucracy, after all--and some staff reports. Then a "go-round" took place in which the presidents and Fed governors discussed the economic outlook, each having had access to two briefing books bulging with fresh data and policy choices. Then it was Greenspan's turn, the meeting's moment of truth, when he delivers his interest-rate recommendation and the rationale for it. "Greenspan always has some striking insight, or some number that no one else has ever heard of before...