clock menu more-arrow no yes

Filed under:

September rate cut called 'prudent' by Fed

WASHINGTON (AP) — Worried that a jarring credit crunch would stifle the economy, Federal Reserve policymakers at their September meeting felt compelled to act aggressively in lowering a key interest rate for the first time in more than four years.

Fed policymakers unanimously agreed to slash interest rates by one-half percentage point to 4.75 percent, calling it "the most prudent course of action," according to minutes of the Sept. 18 meeting released Tuesday.

The minutes underscored just how concerned Fed Chairman Ben Bernanke and his central bank colleagues were that the credit crisis and the worst housing slump in 16 years could undermine the country's economic health. The minutes offered fresh insights into the September meeting, where Bernanke was faced with one of his most important decisions since taking office in February of last year.

"Given the unusual nature of the current financial shock, participants regarded the outlook for economic activity as characterized by particularly high uncertainty, with the risks to growth skewed to the downside," according to the minutes.

Some participants expressed concern that a weaker economy could worsen the credit crunch, which, in turn, could "reinforce the economic slowdown." At the same time, participants pointed out that in previous episodes of financial market disruptions, the economy showed some resilience when the country was suffering through a period of financial turbulence.

"Although financial markets were expected to stabilize over time, participants judged that credit markets were likely to restrain economic growth in the period ahead," the minutes said.