WASHINGTON -- Federal Reserve officials clearly were surprised by the speed of the deterioration in the outlook for the U.S. economy, which caused them this week to acknowledge they may have to soon cut interest rates to help bolster growth.
On Nov. 15, members of the central bank's top policymaking group unanimously reached the opposite conclusion that inflation, not weakness, was the greater risk to economic vitality.
According to minutes released Thursday from that meeting of the Federal Open Market Committee, the officials agreed then that growth had slowed but they expected spending by both consumers and businesses to remain healthy in coming months.
After all, the robust U.S. economy had withstood many shocks over the past decade that might have crippled a weaker economy, only to come roaring back stronger than before.
The Fed officials observed that "economic growth had rebounded sharply from temporary slowdowns previously in the current expansion," the minutes said.
But during the five weeks between Fed meetings, the news just kept getting worse. A raft of U.S. companies warned that their earnings would be lower than expected and that they may cut back on equipment spending.
This sent Wall Street scurrying to slash optimistic projections for corporate profits, and stock prices plummeted. Consumer confidence slipped. Retailers reported the slowest growth in Christmas sales since the 1991 recession.
The bad news wasn't enough to convince the Fed to lower interest rates this week, but many economists expect enough additional bad news to come out to cause the Fed to cut rates soon.
But even with a weaker outlook, the strength of the FOMC members' concern about inflation could temper the willingness of some to move aggressively to cut interest rates to bolster economic growth, analysts said.
For instance, the minutes said that "a few members commented that measures of core inflation already were near or slightly above levels that they viewed as acceptable for the longer run."
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