At a meeting on Dec. 15 and 16, members of the Federal Open Market Committee agreed that “maintaining a low level of short-term interest rates and relying on the use of balance sheet policies and communications about monetary policy would be effective and appropriate in light of the sharp deterioration of the economic outlook and the appreciable easing of inflationary pressures,” according to minutes of the meeting released yesterday.

Federal funds rates were “significantly below the target federal funds rate and the interest rate on excess reserves.” Maintaining the fed funds rate “implied a substantial further reduction in the target federal funds rate,” the Fed said.

“Even with the additional use of nontraditional policies, the economic outlook would remain weak for a time and the downside risks to economic activity would be substantial,” the minutes said. “Moreover, inflation would continue to fall, reflecting both the drop in commodity prices that had already occurred and the buildup of economic slack; indeed some members saw significant risks that inflation could decline and persist for a time at uncomfortably low levels.”

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