Some members of the Federal Open Market Committee anticipated the recent worsening of financial sector strains at last month’s meeting and said, “a policy response could be required,” according to the minutes from the Sept. 16 session released yesterday.

This nod to downside risks to economic growth foreshadowed adverse credit market developments in the ensuing weeks, at a meeting that otherwise resulted in a consensus on no need for rate action at that time.

The stance reflected in the Sept. 16 FOMC minutes has since been superseded by comments from Federal Reserve Board chairman Ben Bernanke earlier yesterday noting that the Fed must consider whether its current monetary policy is “still appropriate.”

On Sept. 16, “members agreed that keeping the federal funds rate unchanged at this meeting was appropriate.” But “some members emphasized that if intensifying financial strains led to significant worsening of the growth outlook, a policy response could be required.”

“Committee members were a bit more optimistic that inflation would moderate in coming quarters,” the minutes added.

However, tightening was still on the table at the Sept. 16 session if inflation remained a threat.

Some concerns about “elevated” core inflation were noted and with “growth expected to pick up next year if financial strains diminish, the committee should also remain prepared to reverse policy easing put in place over the past year in a timely fashion,” the minutes said.

Since September, financial market conditions have clearly worsened and the FOMC, as Bernanke noted, now appears to be reassessing its Sept. 16 stance.

— Market News International

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