Fed minutes show worry about 'militant' unions 07:15 p.m Oct 02, 1997 Eastern WASHINGTON(Reuter) - U.S. central bank policymakers meeting in August found no immediate reason to boost interest rates but worried that a two-week UPS workers' strike could foreshadow inflationary wage demands, minutes of their closed-door session issued on Thursday showed. The Federal Open Market Committee members, meeting on Aug. 19, decided to keep a wait-and-see attitude but stayed wary because the next move on rates -- whenever it comes -- most likely will be upward. ``The members remained concerned about the outlook for inflation,'' said the minutes of the meeting stated. ``They continued to view the next policy move as more likely to be in the direction of some firming than toward easing.'' The Fed policymakers met again on Tuesday, and once again kept rates steady. The last time the U.S. central bank changed rates was on March 25, when it bumped up the key federal funds rate by a quarter percentage point to 5.5 percent, to head off potential inflation. At the August session, Fed members said that while inflation had not accelerated, there were some warning flags, notably on the side of wages and labor costs. Some Fed members were concerned settlement of a two-week strike by 185,000 United Parcel Service workers ``might well be a harbinger of more militant labor negotiating attitudes.'' The Fed panel also noted ``some limited evidence'' of diminished worries about job security and ``multiplying anecdotal reports'' that health care costs might be on the rise again. Both of these factors have been cited in the past as dampening influences on inflation, keeping wage demands down because workers feared losing their jobs and muting the costs of benefits that employers provide. Several other developments were working in the United States' favor. ``Among those factors were the appreciation of the dollar ... a significant decline in world oil prices (and) the relatively sluggish performance of many foreign economies,'' the minutes said, making it cheaper for the United States to import huge volumes of foreign-made goods from Japanese cars to Middle East oil. In the end, the FOMC concluded, it didn't know why inflation was not rearing its head. ``The underlying reasons for the favorable price trends were not entirely clear,'' the minutes said. The U.S. economy is in its seventh year of unbroken expansion, moving forward briskly at a 3.3 percent annual rate in the second quarter after a 4.9 percent surge in the first three months this year. In the past, such rapid growth -- above a 2 percent to 2 1/2 percent pace seen as sustainable without generating sharp wage and price rises -- was considered so potentially risky that it must be ratcheted down through higher inetrest rates to cool borrowing and spending. The Fed minutes said one reason that policymakers felt able to keep policy steady was that short-term interest rates adjusted for inflation were ``relatively high by historical standards,'' helping to guard against inflation. Looking forward, FOMC members felt that even though consumer spending had rebounded from a spring lull, the economic growth rate was likely to ease later in the year. ``The members did not believe that recent developments had altered the prospect that the economy would settle into a pattern of moderate growth approximating its potential,'' the minutes said. A major uncertainty in the outlook was how quickly manufacturers would be able to whittle down a big build-up in inventories of finished products. FOMC members were concerned that if consumer demand remained strong, companies' efforts to keep production high and to stock up on goods might foster wage demands and boost product prices. ---
