The Federal Reserve's staff predicted in August that the U.S. economy would grow at a "solid" pace through next year, in part because interest rates would remain relatively low during that time.
The staff's encouraging forecast -- the most recent publicly available snapshot of the Fed's thinking about the durability of the recovery -- was among the reasons central bank policymakers decided unanimously at their Aug. 10 meeting to raise their key short-term interest rate, according to minutes of the meeting released yesterday.
Fed officials nudged the benchmark federal funds rate up to 1.5 percent from 1.25 percent at the August meeting. They moved it up again Tuesday, at their subsequent meeting, to 1.75 percent, and indicated that they will probably raise it again before the end of the year to prevent inflation from rising.
The Fed releases the minutes of each policymaking meeting about six weeks after it is held, usually a day or two after the following meeting. So an account of this week's meeting will not be available until November.
But the minutes of the August session provide a glimpse of how the staff and policymakers then viewed the likely course of the economic expansion and interest rates in the coming year.
At that point, the economy had been slumping by some measures, with weaker-than-expected job growth, erratic retail sales and increasing oil prices.
However the Fed's staff and policymakers remained optimistic about the economy's prospects, the August minutes show. They agreed that the economy was already rebounding and would continue to pick up steam in coming months.
Among their reasons were expectations of stronger consumer spending, business investment and hiring "over the next several quarters." They also expected inflationary pressures to remain contained through 2005.
"Overall, the committee appeared to be quite upbeat even in the midst of the soft patch," Drew Matus of Lehman Brothers Global Economics wrote in an analysis.
The central bank's top policymaking group, the Federal Open Market Committee, "believed that the softness would prove short-lived and that the economy was poised to resume a stronger rate of expansion going forward," the minutes said.
