The Federal Reserve fretted at its August 8 meeting about lifting US interest rates too high as to choke off growth in the world's largest economy, minutes showed last night.
But at the same time, Fed members agreed that 'inflation risks remained dominant and that consequently keeping policy unchanged at this meeting did not necessarily mark the end of the tightening cycle'.
At the meeting three weeks ago, the US central bank suspended a run of rate increases stretching back to June 2004, arguing that slowing economic momentum should depress inflation in the months ahead. After 17 consecutive rises, the decision by the Federal Open Market Committee left the fed funds rate unchanged at 5.25%.
But the minutes documented concern about 'appreciable upside risks' to core inflation and said the decision to call off the tightening campaign was 'a close call'.
Market reaction to the minutes was muted. Chicago Fed president Michael Moskow had already warned a week ago that more rate increases could be required 'to bring inflation back into the comfort zone'.
One FOMC member, Richmond Fed chief Jeffrey Lacker, voted against the August 8 decision. He argued that further tightening of borrowing costs was needed to bring inflation down more rapidly.
Data since the meeting have shown more moderate inflation readings while a range of sectors, led by the property market, are clearly flagging.
Core consumer prices went up a restrained 0.2% last month, while core producer prices staged their biggest fall in nearly a year in July.
Now, some economists fear that the Fed went too far in raising rates and that the economy could be headed for a hard landing after years of stellar growth.
A Conference Board report yesterday showed that US consumer confidence slumped in August to its lowest level this year, falling to 99.6 from 107 in July.
The Fed minutes anticipated the general downturn that is now becoming apparent. They said the housing slowdown, the effects of higher energy prices, waning consumer spending and past policy tightening were 'expected to hold economic growth below potential over the next six quarters'.
