Fed Considered Cutting Rates Earlier in April

The Federal Reserve considered cutting interest rates earlier than had been believed in April, but it held off for fear of upsetting already choppy financial markets, according to minutes of its policymaking committee.

Fed Chairman Alan Greenspan consulted other members of the Federal Open Market Committee by telephone April 11--less than a week after a surprisingly weak March unemployment report--about easing rates. But the policymakers decided that cutting rates then, between regularly scheduled FOMC meetings, would be such a surprise that it “risked unpredictable reactions” in volatile financial markets, so it held off.

The minutes did not indicate any special worry about the bleak jobless report in the April 11 call, but instead noted “heightened business concern about future sales and further downward revisions to expected earnings [that] threatened to restrain capital spending for some time.” A week later on April 18, in another intermeeting deliberation, FOMC members voted 10-0 to cut rates by half a percentage point, citing continuing worry about business investment and weakening consumer spending and confidence.

The FOMC minutes also showed that on March 20, some members thought a three-quarter percentage point rate cut was needed to give the sluggish economy a jolt.