Tuesday afternoon, the Federal Reserve released the minutes of the Federal Open Market Committee's October meeting, showing that the FOMC's decision to cut interest rates by a quarter point at the meeting was a "close call." The minutes showed that the members discussed whether to cut interest rates by 25 basis points or wait for additional information on the prospects for economic activity and inflation before making any further adjustments. The Committee eventually voted to lower the target for the federal funds rate by 25 basis points, as the members determined that the stance of monetary policy was still somewhat restrictive, partly because of the effects of tighter credit conditions on aggregate demand The vote was not unanimous, however, with Thomas Hoenig, president of the Kansas City Fed, voting in favor of leaving rates unchanged. With inflation risks appearing elevated, Hoenig felt that the target federal funds rate was already close to neutral and judged that policy needed to be slightly firm to better hold inflation in check. The minutes also showed that the committee members agreed on the need to increase the frequency and expand the content of the committee's economic projections. Subsequently, the minutes contained the members' projections for economic growth, unemployment, and inflation in 2007, 2008, 2009, and 2010. The Fed said that the projections indicate that the committee members expect output to grow at a pace somewhat below its trend rate in the near term. The unemployment rate is also expected to edge higher. The minutes showed that the central tendencies of the committee members called for real GDP growth of 2.4 to 2.5 percent in 2007 and 1.8 to 2.5 percent in 2008. The forecast for GDP growth in 2008 marks a notable slowdown from the Fed's June projections. Additionally, the committee members upwardly revised their expectations for unemployment in 2007 and 2008. The unemployment rate is expected to come in at 4.7 to 4.8 percent in 2007 and 4.8 to 4.9 percent in 2008. On the other hand, the Fed's outlook for core consumer price inflation in 2007 was revised down to 1.8 to 1.9 percent from 2 to 2-1/4 percent. Looking ahead, the committee members expect core inflation to remain below the key 2 percent level through 2010. The Fed noted that most committee members viewed the risks to their GDP projections as weighted to the downside and the associated risks to their projections of unemployment as tilted to the upside.
November 20, 2007 3:09 PM