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(JIM YOUNG/Jim Young/Reuters)
(JIM YOUNG/Jim Young/Reuters)

Global Exchange

Fed's inflation hawks return to the fold Add to ...

The hawks on the Federal Reserve’s policy committee have been hooded by a deteriorating economic outlook.

In a surprise shift in sentiment on the Federal Open Market Committee, the three regional Fed presidents who have stood against further monetary stimulus for months -- Dallas’s Richard Fisher, Minneapolis’s Narayana Kocerlakota, and Philadelphia’s Charles Plosser -- dropped their opposition and voted with the majority at the end of a two-day meeting Wednesday.

Those three stood united against the FOMC’s decision in August to make an explicit pledge to keep interest rates near zero until at least the middle of 2013, and then again in September when the committee opted for “Operation Twist,” the Fed’s strategy to lower longer term borrowing rates by selling short-term securities to purchase assets with a duration of six years to 30 years.

They are called hawks because they tend to worry first about inflation. The decision of all three to drop their opposition suggests the Fed unanimously believes that price pressures are contained and the prospects for future economic growth are troubling.

In fact, the Fed clearly is now tilted toward adding monetary stimulus, although it opted against doing so Wednesday. Charles Evans, the head of the Chicago Fed, voted against his nine counterparts on the committee, saying he believes more stimulus is needed now.

Mr. Evans is the Fed’s leading dove, the name Wall Street gives to the flock at the Fed that puts economic growth and job creation ahead of price stability.

The vote makes the Chicago Fed chief look like he’s isolated, but the committee clearly is not so out of step with Mr. Evans’s thinking. The committee noted that data suggest the economy gained pace since the FOMC’s previous meeting in September. But there was no rejoicing.

“The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate,” FOMC’s statement said. “Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets.”

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