Fed Favored Lowering Rates Before Taking Neutral Stand

Although the Federal Reserve has since called a halt to its engineering of lower short-term interest rates, minutes released Friday show that the central bank policy-makers embraced a slight easing of monetary reins at their year-end meeting in December.

But the minutes also reveal that Fed Governor Wayne D. Angell strongly opposed the decision to cut interest rates. His stance foreshadowed the Fed’s more recent turn away from encouraging rates to slide.

Fed Chairman Alan Greenspan also telegraphed the new, more neutral stance last week when he told Congress that the risk of recession had diminished and that he expects a modest rebound in the economy later this year. That is a position that makes it unlikely the Fed will allow rates to fall unless the current soft economic conditions deteriorate markedly.

“I see short-term rates remaining stable for a while,” said David Berson, chief economist at the Federal National Mortgage Assn. here. “All the recent signals from the Fed suggest members will need to see significant additional weakness in the economy before they ease further.”

The Fed’s continued focus on the risks of inflation, which leads central bankers to lean toward keeping interest rates up, means it is likely to remain at odds with the Bush Administration, which wants to lower rates to help spur faster growth in the economy.

The Fed’s monetary policy committee met earlier this week to set its credit stance for the weeks ahead and to establish money supply targets for 1990. The central bank’s Federal Open Market Committee, which meets behind closed doors roughly every six weeks, publishes its minutes belatedly once it has met again to discuss monetary policy.

Decisions at the meeting this week will be unveiled on Feb. 20.

Analysts said the central bankers almost certainly decided this week to keep the key federal funds rate--the interest banks charge each other on overnight loans--steady at about 8.25%. However, they may have allowed themselves some leeway to ease credit if new reports indicate any unexpected further collapse in the economy.