Reserve officials consider effects of possible war

WASHINGTON -- The Federal Reserve, at its September meeting, discussed a possible U.S.-led war with Iraq and decided that military action would not necessarily compel the central bank to cut interest rates to bolster the economy, it was disclosed Thursday.

The Fed released minutes of its closed-door meeting Sept. 24 that showed Fed officials concerned about the potential impact on the economy from a war.

The Fed's public statement after that meeting took note of the "emergence of heightened geopolitical risks" as one of many factors buffeting the economy.

The minutes indicated that Fed officials wanted to note this new uncertainty but also agreed that including the reference to Iraq did not commit the Fed to lowering interest rates in event of war.

"The addition of the language was not intended to signal that any particular policy response would be forthcoming in the event of a crisis," the Fed minutes said.

"Rather, consistent with its usual practice, the (interest-rate) committee would assess the implications of any such development for the domestic economy before deciding on an action."

The Fed said that if uncertainties over what a war might do to the economy eased along with concerns about corporate governance issues, then the rebound in consumer and business confidence might lead to more vigorous economic growth without any further Fed actions.

The Fed on Wednesday cut interest rates by a larger-than-expected one-half point in an effort to bolster the shaky economy, acting on a unanimous 12-0 vote.

ON THE NET

Federal Reserve:

www.federalreserve.gov