The Federal Reserve signaled Wednesday that further interest rate cuts are doubtful without a "significant weakening" of the outlook, even as it slashed its 2008 growth forecast for the US economy.
In minutes released from its April 29-30 policy meeting, the Fed said its decision to cut rates by a quarter point was "a close call" and that the "substantial easing" since last September plus other measures would help underpin economic activity.
At that meeting, the Fed led by chairman Ben Bernanke voted 8-2 to cut the federal funds base lending rate by a quarter-point to 2.0 percent.
But the panel stated that "it was no longer appropriate for the statement to emphasize the downside risks to growth," according to the minutes.
The minutes also said that "several members noted that it was unlikely to be appropriate to ease policy ... unless economic and financial developments indicated a significant weakening of the economic outlook."
In its updated economic outlook, the US central bank made a sharp downward revision for growth to a range of 0.3 to 1.2 percent, from its prior forecast of 1.3 to 2.0 percent.
The updated forecast projected a rise in the unemployment rate to a range of 5.5 to 5.7 percent this year.
Inflation also was expected to pick up to 3.1 to 3.4 percent, up from a prior projection of 2.1 percent to 2.4 percent, largely due to surging energy costs. But the outlook for core inflation, excluding food and energy, was revised up only by 0.2 points to a range of 2.2 to 2.4 percent.
The new outlook, part of the Fed's new policy for more frequent updates, was roughly in line with many private economist forecasts for sluggish growth which would put the world's biggest economy on the brink of recession.
"Participants viewed activity as likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of the year," the statement said.
"Incoming data on spending and employment already indicated a softening economy this year. Real incomes were being held down by higher oil prices; falling house prices had reduced household wealth; and households and businesses were facing tighter credit conditions."
The minutes from the past meeting suggested Fed members were hesitant about the last rate cut.
"Participants stressed the difficulty of gauging the appropriate stance of policy in current circumstances," the minutes showed.
"Even taking account of current financial headwinds, such a low rate could suggest that policy was reasonably accommodative. However, other participants observed that the pronounced strains in banking and financial markets imparted much greater uncertainty to such assessments and meant that measures of the stance of policy based on the real federal funds rate were not likely to provide a reliable guide in the current environment."
Separately, Fed governor Kevin Warsh said in a Washington speech that financial markets should no longer expect rate cuts after an aggressive series of moves that brought the base rate down from 5.25 percent last September.
"The Federal Reserve has employed the hammer with considerable force in the last nine months, lowering the federal funds rate by 3.25 percentage points, with wide-ranging implications for the economy," Warsh said.
"But now, policymakers may be well-served encouraging a new financial architecture to emerge, aided, in part, by the actions we have taken. Even if the economy were to weaken somewhat further, we should be inclined to resist expected, reflexive calls to trot out the hammer again."
Warsh also appeared to suggest the Fed cannot cure all the ill of the banking system, which has tightened credit, with a potential to crimp economic growth.
"In my judgment, the changes in credit availability during the past six years have less to do with the prevailing stance of policy and more to do with changes in financial markets and financial intermediaries," he said.
"Returning the economy to equilibrium requires actions more befitting than changes in the federal funds rate alone."
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