Weighing the risks of weaker growth and higher inflation equally, the Federal Open Market Committee decided to keep the federal funds rate at 2% at its Sept. 16 meeting, despite dealing with a meltdown in the credit markets, according to minutes released today.
“With substantial downside risks to growth and persisting upside risks to inflation, members judged that leaving the federal funds rate unchanged at this time suitably balanced the risks to the outlook,” the minutes read.
Speaking about the financial crisis, some members of the FOMC emphasized that if the “intensifying financial strains” led to a “significant worsening” of the global outlook, a policy response would be required.
However, the Federal Reserve said that a cut “was not called for at this meeting,” according to the minutes.
Members of the FOMC marked down their near-term outlook for economic activity and some expressed concern that downside risks would increase, but most members expected that the economy would have a “gradual recovery” next year.
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