On May 16, 2000, the FOMC gathered around in Washington to debate taking more extreme measures. For nearly a year, Greenspan’s Federal Reserve had been “raising rates” in the now-familiar pattern. Adjusting their target for interest on federal funds, the Committee had by then increased it at all of the five previous policy meetings, each of them by a further 25 bps.

The Bureau of Labor Statistics (BLS) gave them some unwelcome news, however, in between the March 21 meeting and the one in mid-May. On April 14, 2000, the BLS reported the US CPI had increased by 3.7% year-over-year (unadjusted) in March 2000. More concerning, the 3-month compounded change (annual rate) was 5.8%, suggesting that consumer prices were high and accelerating.

On the morning of May 16, the day of the FOMC conclave, the BLS updated the CPI for April 2000. It had softened on a monthly basis due to a reprieve from the relentless rise of oil off the Asian flu lows. Still, the year-over-year gain was 3.0%, with a 3-month compound change just above 5%.

These figures concerned monetary authorities. They were, many believed, in danger of falling behind the Phillips Curve. Inflation pressures appeared to have caught up with a healing economy already operating close to traditional labor limits. As the accompanying Greenbook for May 2000 related in staff projections:

Last month, the unemployment rate edged below the 4 percent mark for the first time in more than thirty years, a development entirely consistent with the anecdotal reports in the Beige Book and elsewhere of an extremely tight labor market. Against this backdrop, and with the effects of the steep run-up in oil prices of the past year filtering through the economy, we are not surprised to be seeing some signs of a general pickup in wage and price inflation. Nonetheless, the recent news, of which big jumps registered by the consumer price and employment cost indexes were only a part, has been striking enough that we have elevated our inflation projection slightly more than we might have solely on the basis of the higher resource utilization now in our forecast.