bankers spend a great deal of time saying they're worried about inflation, officials felt at their policy meeting earlier this month that economic activity had been expanding at a "below-trend" rate in the past few months.
The minutes of the May 9 Fed gathering revealed that of notable concern to the central bank was the state of the housing sector.
"The incoming data on new home sales and inventories suggested that the ongoing adjustment in the housing market would probably persist for longer than previously anticipated," the minutes read. "In particular, the demand for new homes appeared to have weakened further in recent months, and the stock of unsold homes relative to sales had increased sharply."
On the positive side, the Fed said, sales of existing homes appeared "to have held up somewhat better" since the beginning of the year, and the trouble in the subprime sector hadn't spread to the rest of the mortgage market.
Participants at the meeting said they were concerned that the slowdown in housing could have a "more pronounced impact" on consumer spending than currently expected, especially if home prices decline significantly.
Real gross domestic product, the central bankers concluded, will probably "advance at a pace a little below the economy's trend rate of growth through the remainder of this year and then pick up to a rate broadly in line with the economy's trend rate in 2008."
Even so, nearly all attendees at the meeting thought core inflation was still uncomfortably high, though most of them expect a gradual moderation.
All members of the Federal Open Market Committee, the Fed officials who vote on rates, favored leaving the target fed funds rate at 5.25%, where it has been for nearly a year. The FOMC believed that staying put was likely to allow modest economic growth while at the same time keeping core inflation in check.
Taken as a whole, the minutes suggested the central bank isn't planning any near-term moves, whether a cut or a hike.
"Members continued to view the risks to economic activity as weighted to the downside, although with turmoil in the subprime market appearing to have remained relatively well-contained and business spending indicators suggesting a more encouraging outlook, these downside risks were judged to have diminished slightly," the Fed minutes stated.
Those at the meeting also agreed that "considerable uncertainty attended the prospects for inflation, and the risk that inflation would fail to moderate as desired remained the Committee's predominant concern."