Fed left plans for more cuts dependent on data: meeting notes

Fed left plans for more cuts dependent on data: meeting notes
The Business Times (11 October 2007)

(WASHINGTON) Policymakers at the Federal Reserve Board left their last month's meeting without any specific plan for further interest rate cuts because they were unsure how markets and economic growth would evolve, minutes of the Sept 18 meeting show. 'Further actions would depend on how economic prospects were affected by evolving market developments and by other factors,' according to the records, released here on Tuesday. Any statement on the balance of risks to the economy 'could give the mistaken impression that the committee was more certain about the economic outlook than was in fact the case'. The report reinforces comments by Fed officials, including vice-chairman Donald Kohn this month and show that the central bank has not committed to a series of rate reductions. Mr Kohn said last Friday that policymakers must be 'nimble' in setting policy because of risks to both growth and inflation. Fed officials 'all' concluded it was best to lower their benchmark rate by half-a-point to 4.75 per cent, double the amount that most economists had forecast, the minutes showed. The release includes summaries of conference calls by Fed officials on Aug 10 and Aug 16. Policymakers discussed changing the lesser-used discount rate on Aug 10, before they reduced it half-a-point on Aug 17, the minutes said. Following the policy vote on Sept 18, the Federal Open Market Committee (FOMC) continued to discuss communications issues and 'additional policy options to address strains in money markets'. 'No decisions were made in this session, but it was agreed that policymakers should continue to consider such options carefully,' the minutes said, without being specific.The Aug 10 call showed the Fed discussed an 'adjustment' to the discount rate as the Fed sought to deal with growing tumult in credit markets. The New York Fed added US$62 billion into the banking system on Aug 9 and Aug 10 - the largest amount of temporary liquidity injections since Sept 12, 2001.At that time, the Fed refrained from lowering the discount rate, the charge it makes to banks for direct loans. Fed officials six days later debated a discount rate cut, with one participant questioning the 'appropriateness' of such a move. The call ended with a unanimous vote in favour of a statement that said 'downside risks to growth have increased appreciably'. The Fed cut the discount rate half a percentage point the following morning to 5.75 per cent. The rate is usually one percentage point above the federal funds rate. Fed officials continued to express concern about inflation at the September meeting, citing rising labour costs and a depreciating dollar, the minutes showed. The US currency has slid to a record low against the euro this month. -- Bloomberg