WASHINGTON (AFX) -- The Federal Reserve raised interest rates by a quarter-percentage point, as expected, on Tuesday, and signaled that rates will continue to rise at a "measured" pace.
But the nation's central bank, in an unusual twist, also was forced to issue two different policy statements, one of which was intended to make clear that it believes long-term inflation trends "remain well contained."
The policy-setting Federal Open Market Committee blamed high energy prices for the slowdown in consumer spending, suggesting that the economy's resulting softness could be temporary.
At first, slight changes to the wording of the Fed's statement seemed to imply a heightened concern about inflation.
But in a highly unusual move, the Fed acknowledged nearly two hours later that its printed announcement inadvertently omitted a sentence about inflation.
The omitted sentence was: "Longer-term inflation expectations remain well contained."
The Fed gave no explanation for the statement mishap.
On Wall Street, U.S. stocks and bonds dropped after the initial statement and then rose slightly in the final minutes of trading, spurred higher after the statement was corrected.
The Dow Jones Industrial Average ended up 5.25 points at 10,256.95. Treasury prices rose, sending the yield on the 10-year bond down to 4.16%.
Steve Stanley, chief economist for RBS Greenwich Capital, said the correction to the statement didn't change his views that the Fed is more concerned about rising inflation than about slower growth.
Even after the revised announcement, the Fed had still backed off from its March statement that higher energy prices hadn't yet fed into core consumer prices, Stanley said.
Mike Moran, chief economist at Daiwa Securities America Inc, said he initially thought the Fed was much more concerned about inflation than they were in March.
But when the missing sentence is added, it "indicates that policy-makers did not see a sharp change in the inflation situation," Moran said.
The FOMC statement kept the wording that its monetary policy stance was "accommodative," and that this "accommodation" could be removed "at a pace that is likely to be measured."
Carl Tannenbaum, an economist at ABN Amro/LaSalle Bank in Chicago, said the statement suggests quarter-point rate increases are in the works at the Fed's next policy meetings in June and August.
Continuation on course
"The Fed's statement ... suggests a continuation of their course that is now approaching a year in duration of 25-basis-point increases in the funds rate until signs of diminishing inflation pressure reveals themselves," he said. A basis point is one one-hundredth of a percentage point.
After August, the course of monetary policy depends in large measure on gasoline prices, he said.
In its statement, the Fed acknowledged slower growth in the U.S. economy, attributing it to higher energy prices.
"Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices," the committee said.
The committee repeated that pressures on inflation had picked up in recent months, and that "pricing power is more evident."
Labor markets were said to be improving gradually.
The vote of the 12-member Fed committee to tighten policy was unanimous. Fed governor Ben Bernanke, who is joining the White House as top economic adviser, didn't vote.
Discount rate
All 12 Federal Reserve banks requested a simultaneous quarter-percentage point increase in the discount rate, to 4%.
The minutes of Tuesday's meeting will be released on May 24.
The Fed has now raised rates by 200 basis points, which is more than the total tightening in the last cycle.
Economic data in March have been generally soft, with weaker-than-expected job growth and retail sales.
As a result, economic growth in the first quarter came in at a 3.1% annual rate, the slowest in two years.
But economists said it's still an open question regarding whether the economic "soft patch" will turn into a deeper downturn.
Many economists aren't worried about slower growth. They're more worried about continued inflationary pressure.
Core consumer prices increased at a 2.2% rate in the first quarter, leaving the year-over-year increase at 1.6%, near the top of the Fed's comfort zone.
The horse race between slower growth and faster inflation has kept financial markets on edge for the past several weeks.
Analysts said the Fed did not seem worried about a slowdown.
"The admission of slower growth is simply a get-out clause if growth should slow a great deal further," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.
For more information and to contact AFX: www.afxnews.com and www.afxpress.com
But the nation's central bank, in an unusual twist, also was forced to issue two different policy statements, one of which was intended to make clear that it believes long-term inflation trends "remain well contained."
The policy-setting Federal Open Market Committee blamed high energy prices for the slowdown in consumer spending, suggesting that the economy's resulting softness could be temporary.
At first, slight changes to the wording of the Fed's statement seemed to imply a heightened concern about inflation.
But in a highly unusual move, the Fed acknowledged nearly two hours later that its printed announcement inadvertently omitted a sentence about inflation.
The omitted sentence was: "Longer-term inflation expectations remain well contained."
The Fed gave no explanation for the statement mishap.
On Wall Street, U.S. stocks and bonds dropped after the initial statement and then rose slightly in the final minutes of trading, spurred higher after the statement was corrected.
The Dow Jones Industrial Average ended up 5.25 points at 10,256.95. Treasury prices rose, sending the yield on the 10-year bond down to 4.16%.
Steve Stanley, chief economist for RBS Greenwich Capital, said the correction to the statement didn't change his views that the Fed is more concerned about rising inflation than about slower growth.
Even after the revised announcement, the Fed had still backed off from its March statement that higher energy prices hadn't yet fed into core consumer prices, Stanley said.
Mike Moran, chief economist at Daiwa Securities America Inc, said he initially thought the Fed was much more concerned about inflation than they were in March.
But when the missing sentence is added, it "indicates that policy-makers did not see a sharp change in the inflation situation," Moran said.
The FOMC statement kept the wording that its monetary policy stance was "accommodative," and that this "accommodation" could be removed "at a pace that is likely to be measured."
Carl Tannenbaum, an economist at ABN Amro/LaSalle Bank in Chicago, said the statement suggests quarter-point rate increases are in the works at the Fed's next policy meetings in June and August.
Continuation on course
"The Fed's statement ... suggests a continuation of their course that is now approaching a year in duration of 25-basis-point increases in the funds rate until signs of diminishing inflation pressure reveals themselves," he said. A basis point is one one-hundredth of a percentage point.
After August, the course of monetary policy depends in large measure on gasoline prices, he said.
In its statement, the Fed acknowledged slower growth in the U.S. economy, attributing it to higher energy prices.
"Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices," the committee said.
The committee repeated that pressures on inflation had picked up in recent months, and that "pricing power is more evident."
Labor markets were said to be improving gradually.
The vote of the 12-member Fed committee to tighten policy was unanimous. Fed governor Ben Bernanke, who is joining the White House as top economic adviser, didn't vote.
Discount rate
All 12 Federal Reserve banks requested a simultaneous quarter-percentage point increase in the discount rate, to 4%.
The minutes of Tuesday's meeting will be released on May 24.
The Fed has now raised rates by 200 basis points, which is more than the total tightening in the last cycle.
Economic data in March have been generally soft, with weaker-than-expected job growth and retail sales.
As a result, economic growth in the first quarter came in at a 3.1% annual rate, the slowest in two years.
But economists said it's still an open question regarding whether the economic "soft patch" will turn into a deeper downturn.
Many economists aren't worried about slower growth. They're more worried about continued inflationary pressure.
Core consumer prices increased at a 2.2% rate in the first quarter, leaving the year-over-year increase at 1.6%, near the top of the Fed's comfort zone.
The horse race between slower growth and faster inflation has kept financial markets on edge for the past several weeks.
Analysts said the Fed did not seem worried about a slowdown.
"The admission of slower growth is simply a get-out clause if growth should slow a great deal further," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
This story was supplied by MarketWatch. For further information see www.marketwatch.com.
For more information and to contact AFX: www.afxnews.com and www.afxpress.com