Thu Aug 12, 2004

WASHINGTON, Aug 12 (Reuters) - The Federal Reserve policy panel in June saw a series of "gradual or 'measured'" interest rate rises as likely ahead but acknowledged more "aggressive" steps may be needed, according to meeting minutes released on Thursday.

"Depending on the rate at which resource utilization increased and the level and trend of inflation, a more aggressive pace toward reaching a neutral policy stance might be called for so as to provide assurance of containing emerging inflationary pressures and averting the potential need for greater overall tightening," the minutes said.

The Federal Open Market Committee raised the key federal funds rate target by a quarter-percentage point to 1.25 percent at the end of its June 29-30 meeting, and increased it by the same amount at its most recent meeting Tuesday.

"The timing and pace of further policy moves would depend, of course, on the members' reading of the incoming economic information and their interpretation of its implications for economic activity and inflation," the June minutes said. Minutes for Tuesday's meeting will be released in September.

"Members commented that they could envision a series of gradual or 'measured' policy moves as likely" to be consistent with Fed efforts to forestall inflation, according to the minutes.

June's move was the first rate increase since May 2000 and came only after the central bank was certain the U.S. economy was on a solid footing. While the "measured" language was meant to reassure financial markets, the minutes showed "a few" FOMC members preferred no characterization of future policy.

One reason for that hesitance was increased uncertainty over inflation. "A number of members emphasized that they would view the risks as tilted to the upside in the absence of further policy tightening actions," the minutes said.

The panel said there was statistical and anecdotal evidence of an acceleration in consumer prices but the panel believed some of the increase in "core" inflation - excluding food and energy - was caused by "transitory" factors, such as rising energy prices.

"Just how much slowing of price increases was likely after some relatively elevated readings was difficult to forecast," the minutes said.

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