Members of the Federal Reserve's interest rate-setting panel believed the Sept. 11 attacks dealt a blow to an already struggling U.S. economy, minutes of their Oct. 2 meeting released Thursday showed.

But the Fed policymakers still thought a "relatively mild and short contraction" in economic activity, followed by a recovery next year, was the most likely outcome.

"The economy appeared to have been growing very little, if at all, prior to the terrorist attacks, and the dislocations arising from the latter seemed to have induced a downturn in overall economic activity," the minutes said.

At the meeting, the Federal Open Market Committee voted 10-0 to cut short-term interest rates by a half-percentage point, its second such reduction since the attacks. The FOMC moved again Tuesday, cutting rates another half-percentage point to 2.0 percent.

In the minutes, the FOMC members said the attacks had produced "a marked increase in uncertainty and anxiety among contacts in the business sector." The members also saw as a "major question" the extent to which the attacks would weigh on consumer spending.

In deciding to give a hefty half-point dose of interest rate medicine, the Fed members believed inflation posed little risk and dangers to the economy remained tilted toward weakness.

"While monetary policy had already been eased substantially this year, the increased evidence of a faltering economy and the decidedly downside risks in the outlook called for a further move at this meeting," the minutes said.

Still, even with short-term rates then at the lowest level since the early 60s, policymakers said they were not "unusually accommodative" when compared with rates in previous economic downturns.

Besides, the FOMC members also believed policy was flexible enough that it could be reversed "in a timely manner" should past rate reductions and a boost from federal tax cuts start the economy growing along an inflationary path.