Fed Minutes May Presage More Rate Cuts

Wall Street Journal (02/21/08) P. A2; Ip, Greg
Minutes of the Federal Open Market Committee's Jan. 29-30 meeting, when the federal-funds rate was lowered to 3 percent from 3.5 percent, reveal that Federal Reserve Chairman Ben Bernanke held a conference call on Jan. 9--just days after the release of a report showing an unanticipated increase in unemployment the prior month. While officials discussed a dramatic cut in interest rates, no action was taken, with Bernanke believing the same effect as a between-meetings rate cut would be achieved by simply informing the public that a rate cut was on the horizon. However, the central bank was prompted to reduce the federal-funds rate to 3.5 percent from 4.25 percent on Jan. 22 due to deteriorating credit conditions--not stock market declines, as widely reported. Experts indicate that the central bank decided to cut interest rates twice to avoid creating a panic with a one-time reduction of 1.25 percentage points.