Fed’s Minutes Reveal Concern Prior to Discount-Rate Cut
In the August 7 Federal Reserve meeting, the minutes that were released yesterday, indicate that ten days before cutting the discount rate, officials were worried enough about eroding financial conditions to weigh the possibility of taking policy action.
“A further deterioration in financial conditions could not be ruled out," the Fed said in the minutes, released yesterday. Such a development "might require a policy response" if it threatened economic growth, they said.
At the time, Fed officials deemed inflation to be the "predominant" concern and voted to keep their target for the federal-funds rate, or the rate at which banks lend to one another, unchanged at 5.25%.
The Fed's decision to cut the discount rate, at which the Fed lends directly to bank, and to express concern that risks to economic growth had risen "appreciably" came Aug. 17.
"There was a time prior to the discount-rate cut that people in the markets thought [Fed officials] were asleep at the switch," said Stephen Stanley, chief economist at RBS Greenwich Capital Markets. "These minutes show that wasn't the case," he said.
Published on August 29, 2007
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