Slowing economy eased Fed decision

WASHINGTON -- A slowing economy and retreating energy prices made it somewhat easier for the Federal Reserve to hold interest rates steady last month.

That was in sharp contrast to the August meeting where policy makers wrestled with their next move. They ultimately decided at the August session to halt a two-year string of interest rate increases. But the Fed members also said that had been a close call.

At the Sept. 20 meeting, some softer indicators of economic activity and slightly lower readings on core inflation ``pointed to a modestly better inflation outlook and hence made the policy decision today somewhat less difficult than it was in August, when it was seen as a particularly close call," said minutes of the session released yesterday.

September's decision marked the second meeting in a row where policy makers decided to leave interest rates alone.

Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, was the lone dissenter at both meetings. Lacker said he would have preferred that the Fed increase interest rates by one-quarter of a percentage point.

``Mr. Lacker dissented because he believed that further tightening was needed to bring inflation down more rapidly than would be the case if the policy rate were kept unchanged," the minutes of the September meeting said.

In a speech in Washington, Lacker argued that ``should inflation persist around the current elevated level" a rate increase would be needed to ``restore price stability."

Fed policy makers made it clear they are keeping a close eye on the nation's price climate. The Fed minutes said ``many meeting participants emphasized that they continued to be quite concerned about the outlook for inflation."

But looking ahead, most participants thought that inflationary pressures would eventually ease.

On the growth side of economic equation, policy makers said a ``significantly more sluggish performance than anticipated could not be entirely ruled out."

The economy, which grew at a brisk 5.6 percent annual rate in the opening quarter of this year, slowed to less than half that in the April-to-June period.