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Minutes reveal reasoning behind interest rate drop

"Members generally saw overall inflation as likely to be lower next year [2008], and core inflation as likely to be stable, even if policy were eased somewhat at this meeting."

minutes from an FOMC meeting on Dec. 11

The Federal Reserve was mainly worried about economic growth when it lowered interest rates last month, with a dissenter calling for a "more aggressive" cut, according to the minutes of the meeting released on Wednesday.

"Real GDP was anticipated to increase at a rate noticeably below its potential in 2008," before returning to a normal pace next year, the minutes of the Federal Open Market Committee's (FOMC) meeting on Dec. 11 said.

At the meeting the Fed lowered its base federal funds rate by a quarter point to 4.25 percent.

It was the third back-to-back rate cut since September, trimming a combined one percentage point off the key rate.

The Dec. 11 minutes said the central bank once again had lowered its GDP forecasts for the world's biggest economy.

Underscoring unusually high uncertainty in the economic outlook, some FOMC members noted the risk of "an unfavorable feedback loop" in which financial stresses stemming from the housing slump restrained economic growth, leading to additional tightening of credit that results in a downward spiral.

"Such an adverse development could require a substantial further easing of policy," the minutes said.

By contrast, the policymakers saw no significant deterioration in the inflation outlook since their previous FOMC meeting, on Oct. 30 and Oct. 31.

"Members generally saw overall inflation as likely to be lower next year [2008], and core inflation as likely to be stable, even if policy were eased somewhat at this meeting," the document said.

Eric Rosengren was the sole dissenter in the vote to cut interest rates by a quarter point, preferring a deeper cut.
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