board of governors held off on a rate hike at their last meeting, the central bank broadly believed that its next move should be up, according to minutes released Tuesday afternoon.
At a meeting earlier this month in which the Federal Open Market Committee
, participants noted "significant concerns" about inflation, saying that price increases will not moderate next year unless rate hikes come sooner than the financial markets expect.
Participants said that such a move would depend on conditions in the economy and financial markets, and its implications for growth and inflation. They also noted that the current rate of 2% is not "particularly accommodative" to households and businesses, which face higher borrowing costs and less available credit from risk-averse lenders.
In addition, some participants noted the threat of a cyclical pattern in which tight mortgage-lending standards hurt the housing market's ability to improve, thus hurting lenders and consumers alike. Others said credit conditions were "broadly consistent with typical patterns" during an economic slowdown.
The Fed has lowered its target rate 325 basis points since September, in an effort to foster liquidity in the markets and ease the credit crunch. While participants said the seven rate cuts -- the last of which came in April -- should "promote moderate growth over time," they slashed forecasts for inflation-adjusted GDP growth through 2009.
Participants at the Aug. 5 meeting also remained worried about unemployment, inflation and sluggish growth and noted "significant concerns" about inflation.
"The labor market continued to weaken significantly, financial conditions remained unfavorable, consumer and business confidence was downbeat, and manufacturing activity was contracting," participants noted, adding further strains on economic output.
Lowering the cost of lending, as the Fed has done with its rate cuts, can also hurt the value of the dollar, stoking higher inflation. However, the dollar has rebounded recently against major currencies, and inflation concerns have eased as prices for oil and other commodities declined. Participants still continued to debate on the inflation outlook, noting that "the recent decline in energy prices might well be reversed in coming months."
The lone dissenting voice of the 11 voting members was the hawkish Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. He noted that businesses had become more inclined to pass on higher overhead costs to customers through price increases, and viewed inflation as a greater risk than the "fragile" financial system and weak economic growth.