Fed minutes indicate economic risks

The Federal Reserve today released the minutes from its most recent meeting on Jan. 29-30 (there is always a lag between the central bank's monetary policy decisions and the release of the minutes that accompany those decisions). Those minutes suggested that the Fed continued to see threats to the economy, even after it trimmed interest rates to their lowest level since June 2005.

"With no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the Committee agreed that downside risks to growth would remain even after this action," the Fed said.

Not all the Fed officials were in favor of the rate cut, however, with Richard W. Fisher the lone dissenting voice. "Mr. Fisher was concerned that inflation expectations could become unanchored if the perception of negative real rates of interest were to become pervasive," the minutes said. Realizing such inflammatory rhetoric would win him few friends, Fisher decided to tone his comments down a bit, noting he "saw the upside risks to inflation as being greater than the downside risks to longer-term economic growth, especially in light of the recent, aggressive easing of monetary policy and the lag before it would have its full effect on the economy." At least someone on the Federal Open Market Committee speaks in language we can all understand.

The Fed indicated that it could actively tighten monetary policy once the economy rebounds, highlighting some officials' stance that "when prospects for growth had improved, a reversal of a portion of the recent easing actions, possibly even a rapid reversal, might be appropriate."

That need to quickly raise interest rates was supported by a report today showing consumer prices rose more than forecast in January. If inflation comes to be viewed as a greater economic threat, it could limit the central bank's ability to continue loosening monetary policy.   

Additionally, the Fed's minutes included a description of the Jan. 21 conference call that produced a surprise rate cut on Jan. 22.

Federal Reserve decisions on interest rates can have an impact on the annual percentage rates consumers are charged by their credit card issuers. The next Fed meeting is scheduled for March 18.