Fed’s forecast for economy gets gloomier

On Wall Street, the hope of more rate cuts lifted stocks. The Dow Jones industrials closed up 90.04 points.

Fed policymakers were mindful that they needed to keep a close eye on inflation, minutes of the Jan. 29-30 meeting said.

And, several noted that when prospects for economic growth improved, “a reversal of a portion of the recent easing actions, possibly even a rapid reversal, might be appropriate,” according to the documents.

Still, all but one of the Fed’s members agreed to lower rates by a half-point at that time.

Richard Fisher, president of the Federal Reserve Bank of Dallas was the sole dissenter. He preferred no change, believing the level of interest rates was already “quite stimulative, while headline inflation was too high.”

For next year, the Fed expects economic growth to pick up a bit and for inflation to moderate. The unemployment rate could ebb to 5 percent or hover as high as 5.3 percent, according to the Fed’s forecast.

The minutes also showed that the Fed conducted a conference call on Jan. 9 as policymakers reviewed economic data and financial market developments, which were worsening. They did not lower interest rates at that time, although most policymakers were of the view that “substantial additional policy easing in the near term might well be necessary” to help brace the wobbly economy.

As the financial situation continued to deteriorate, worldwide stock markets plunged and recession fears intensified, Bernanke convened an emergency conference call on Jan. 21. The Fed decided to slash rates by the dramatic three-quarters of a point and make the announcement on the following morning, Jan. 22.

Demonstrating the Fed’s “commitment to act decisively” might reduce concerns that seemed to be contributing to the worsening state of financial markets, according to the minutes. However, there was some concern expressed that such a bold move “could be misinterpreted as directed at recent declines in stock prices, rather than the broader economic outlook,” the documents showed.

William Poole, president of the Federal Reserve Bank of St. Louis, was the lone dissenter on the Fed rate cut announced on Jan.

22. He did not believe conditions justified a cut before the regularly scheduled meeting on Jan. 29-30, the minutes said.

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