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Fed Cuts and Signals Halt
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Those are major reasons to avoid cutting rates any further; continued lowering of rates could undermine the central bank's credibility as an inflation-fighter.
Some policymakers didn't want to go this far. Dallas Fed President Richard W. Fisher and Philadelphia Fed President Charles I. Plosser dissented from the rate cut.
Both have expressed more hawkish views about inflation than have other Fed leaders. There has been at least one dissenter at every meeting of the policymaking committee since September, reflecting both the uncertainty surrounding the economic outlook and the fact that Fed Chairman Ben S. Bernanke has a more democratic style than his predecessor, Alan Greenspan.
The Fed had room to maneuver in part because the economy, while weak, hasn't softened any more than analysts have been expecting. That is underscored by yesterday's report on gross domestic product, the broadest measure of economic output.
The nation's output rose at an 0.6 percent annual rate in the first three months of the year, the Commerce Department reported, the same pace as in the fourth quarter of last year. Economists had expected slower growth.
There was little good news in the details of the report, however. Much of the growth came from a buildup in business inventories, which resulted from weak demand for products. Businesses are likely to deplete those inventories in the months ahead, creating a new drag.
And investment in housing fell 26.7 percent, the steepest decline in a single quarter on record.
The new data lower the likelihood that the nation will turn out to be experiencing a recession, which is formally defined as a significant decline in economic activity lasting more than a few months. However, many other data suggest that the economy is contracting, and the GDP data will be revised as more information becomes available.
President Bush had been criticized by Democrats for repeatedly declining to declare that the nation had entered a recession. Statements from the White House held a whiff of vindication yesterday.
"This represents a small but positive growth in the United States economy, and it is about what you have heard us say we were expecting in this quarter," said press secretary Dana Perino. But, she added later, "make no mistake, while this was slow growth, the president doesn't believe it's anything to crow about."
The stock market was up substantially on the positive news about GDP, with the Dow Jones industrial average ahead more than 120 points at one point. It then fell shortly after the Fed announcement, as traders were displeased to realize that Fed rate cuts may no longer be in the offing, and major indicators ended the day down slightly.
Staff writer Dan Eggen contributed to this report.
