WASHINGTON – Several members of the Federal Reserve argued at their meeting in June that the Fed's aggressive effort to spur the lagging economy with reductions in interest rates could be drawing to a close, according to minutes of those discussions released Thursday.
The Fed minutes, for the June 26-27 meeting, showed the central bank was beginning to worry whether it was running the risk of overdoing its interest rate cuts and sowing the seeds for inflation troubles.
Despite those concerns, the Fed went ahead and cut rates on June 27 for the sixth time this year. That rate reduction was followed by another rate cut Tuesday. However, both of those reductions were smaller quarter-point moves.
The June rate cut was approved on a 9-1 vote, marking the second time that someone dissented.
In the latest case, William Poole, president of the St. Louis Federal Reserve regional bank, objected, saying he was concerned that money supply was already growing so rapidly that inflation could become a problem.
At the previous meeting in May, Thomas Hoenig, president of the Kansas City regional Fed bank, had dissented, indicating he favored a smaller quarter-point move rather than the half-point rate cut voted in May.
The Fed's first five rate cuts this year were by a larger half-point each, representing the central bank's most aggressive credit easing moves in 19 years.
The minutes of the June discussions showed that various officials on the Fed's interest-rate-setting Federal Open Market Committee believed the central bank had to be careful and not overdo the credit easing.
"In the view of a number of members, the committee might well be near the end of its easing cycle," the minutes said. "At the same time, several emphasized that they did not want to rule out further easing later if warranted by the tenor of incoming economic information."
The Fed cut rates by a quarter-point on Tuesday, pushing the federal funds rate, the interest that banks charge each other, down to a seven-year low of 3.5 percent.
Many economists say the Fed could cut rates for an eighth time at the next meeting Oct. 2. The central bank left the door open for such a decision by adopting a policy directive indicating officials were still more concerned about economic weakness than inflation.
However, the minutes of the June discussions showed a growing sentiment that the central bank probably had all that was needed to boost the economy and keep the country out of a recession.
The Fed minutes noted that Fed rate cuts work only with a lag to spur growth. The central bank also noted the economy would be getting a boost from the nearly $40 billion in tax relief approved by Congress for this year.