Fed meeting minutes: Stagflation is here

The minutes from the Federal Reserve Board’s March 20-21 policy meeting were just released. You can read the whole file here, if you're so inclined. But in a nutshell, the Fed admitted that inflation pressures are so persistent and so intense that it can’t afford to cut short-term rates even though the economy is struggling.

Here's the "short" version of the Fed's concern from one part of the minutes:

"The combination of generally weaker-than-expected economic indicators and uncomfortably high readings on inflation suggested increased downside risks to economic growth and greater uncertainty that the expected gradual decline in core inflation would materialize."

And here's the "long" version from another section:

"Additional evidence of sluggish business investment and recent developments in the subprime mortgage market suggested that the downside risks relative to the expectation of moderate growth had increased in the weeks since the January FOMC meeting. At the same time, the prevailing level of inflation remained uncomfortably high, and the latest information cast some doubt on whether core inflation was on the expected downward path. Most participants continued to expect that core inflation would slow gradually, but the recent readings on inflation and productivity growth, along with higher energy prices, had increased the odds that inflation would fail to moderate as expected; that risk remained the Committee’s predominant concern."