WASHINGTON — Federal Reserve policy-makers last month indicated that interest-rate decisions could become less predictable, relying more heavily on short-term economic prospects than on more sweeping monetary strategy.
Minutes of the Fed's closed-door meeting on Jan. 31 — Chairman Alan Greenspan's last — were released Tuesday and offered insight into policy-makers' thinking as they contemplated what might be the appropriate end point in the Fed's nearly two-year credit tightening campaign and as they prepared for the new chief, Ben Bernanke.
"Although the stance of policy seemed close to where it needed to be given the current outlook, some future policy firming might be needed" to keep inflation and the economy on an even keel, according to the minutes.
One of the first challenges facing Bernanke, whose first day on the job was Feb. 1, will be to work with his Fed colleagues and decide when to stop boosting rates. If he stops too soon, inflation could get out of hand. If he waits too long, the economy could be hurt.
Bernanke's first interest-rate meeting is March 27-28. In congressional testimony last week, he hinted that another rate increase could come at that time to help keep inflation in check.
At the January meeting, the Federal Reserve boosted a key interest rate, called the federal funds rate, by one-quarter percentage point to 4.50 percent, the highest in nearly five years. That was the 14th increase of that size since the Fed began to tighten credit in June 2004.
The funds rate, the interest that banks charge each other on overnight loans, is the Fed's main tool for influencing economic activity.
In the future, though, the path of interest rates might not be nearly as predictable as it had been, Fed policy-makers indicated in the minutes.
"All members agreed that the future path for the funds rate would depend increasingly on economic developments and could no longer be prejudged with the previous degree of confidence," the minutes stated.
Another economic development Tuesday showed that a closely watched gauge of future economic activity rose sharply in January, suggesting the nation's economy could see robust growth in the spring.
The Conference Board said its Index of Leading Economic Indicators rose 1.1 percent last month, better than the 0.5 percent gain expected by market analysts. January's increase follows a 0.3 percent increase in December.
The gain in December's leading economic indicator was revised upward from what was originally reported as a 0.1 percent increase, according to Ken Goldstein, the Conference Board's labor economist.
The leading index's January increase reflects improvement in six of 10 components, including stock prices and building permits. The index has increased 2.3 percent from July 2005 to January 2006.
"The economy got off to a good start (early) in the first quarter," said Joe LaVorgna, chief fixed-income economist at Deutsche Bank Securities Inc.
In addition to the gain in the group's leading index, its coincident index, a measure of the current economy, rose 0.2 percent in January, following a 0.2 percent increase in December.
"The coincident economic indicators have been rising moderately but steadily in recent months, suggesting the economy is sustaining a relatively moderate pace," Goldstein said in a statement accompanying the data.
"The Leading Economic Index, however, rose sharply in three of the last four months. That could be a signal of a faster pace this spring," Goldstein added.