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Fed unanimous in October cut
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November 8, 2001: 2:38 p.m. ET
Fed policy makers sought to bolster confidence with 9th cut of the year.
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NEW YORK (CNNmoney) - Federal Reserve policy makers voted unanimously in October for the ninth interest-rate cut of the year, noting that the Sept. 11 terror attacks had caused a downturn in an already stagnant U.S. economy, according to minutes of the Fed's meeting released Thursday.
Members of the Fed's policy making Federal Open Market Committee voted 10-0 to cut the central bank's target for short-term interest rates to 2.5 percent from 3.0 percent after their Oct. 2 meeting.
"While monetary policy had already been eased substantially this year, the increased evidence of a faltering economy and the decidedly downside risks in the outlook called for a further move at this meeting," the Fed said in its minutes of that meeting.
In making the cut, policy makers expressed uncertainty about the extent of the damage done to the economy by the terror attacks on New York City and Washington, D.C., but said the downside risks warranted a cut.
"The attacks of Sept. 11 might well have induced a mild downturn in economic activity after several months of little movement in the level of economic activity," the minutes said.
The Fed seemed particularly concerned about how consumer and business confidence would suffer in an atmosphere of a weakening global economy, falling stock prices and increased uncertainty about the health of the economy - and job security.
"Further vigorous easing action would tend to support business and household confidence, which a number of members saw as especially important in the current circumstances," the minutes said.
In fact, the Fed has since cut rates again for a record-tying tenth time, and its target for the federal funds rate, an overnight bank lending rate, is at the lowest level since 1962.
Policy makers did not feel constrained by the threat of inflation, saying their ability to cut rates is a "flexible instrument," and they could quickly start raising rates again if conditions warranted.
"Policy could be reversed in a timely manner later should stimulative policy measures and the inherent resiliency of the economy begin to foster an unsustainable pace of economic expansion," the minutes said.
Click here for more on the Fed and rates
As for now, contraction is the dilemma. Third-quarter gross domestic product (GDP), the broadest measure of the U.S. economy, shrank in the third quarter, and many economists expect it to be worse in the fourth quarter, meaning the common requirement for a recession - two straight quarters of shrinking GDP - will have been met.
Still, the Fed said it saw the possibility of a later comeback in consumer spending, which fuels two-thirds of GDP, depending partly on the amount of fiscal stimulus from Congress.
Lawmakers are trying to agree on a multi-billion-dollar package of tax cuts and spending to boost the economy, and some observers think the Fed's aggressive rate cut on Nov. 6 was partly made in reaction to the length of time it's taking for Congress to settle on a plan.
The Fed also said it expected a "gradual recovery" in the economy in the first half of 2002, building momentum until economic growth approached its full potential later in the year. 
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