The pause in the expansion during the spring had eased
pressures on resources, as evidenced in part by anecdotal reports of lessening labor shortages in some areas and reduced use of overtime work by some firms, and the higher rate of inflation experienced during the early months of the year seemed unlikely to persist.
While they could support a slight adjustment to policy at this point, these members were persuaded that the stance of monetary policy probably would need to be eased
by more than a slight amount over time to accommodate the intermediate- and long-term needs of an expanding economy.
Evidence that the Federal Reserve had eased the federal funds rate 25 basis points on August 6 triggered a new round of selling of the dollar against the mark that took the exchange rate briefly below DM1.
During the first two weeks of September, the dollar eased more than 3 percent against the mark to just under DM1.
Under these circumstances, the pace of the dollar's decline against the mark slowed during the second half of September, even as the exchange rate eased to its low for the period under review of DM 1.
Members noted that monetary policy had been eased
in several steps over the course of recent weeks; while substantial additional easing might not be needed under prevailing conditions, a limited further move would provide some added insurance in cushioning the economy against the possibility of a deepening recession and an inadequate rebound in the economy without imposing an unwarranted risk of stimulating inflation later.
On August 1, Chairman Greenspan confirmed in Senate testimony that the Federal Reserve had modestly eased its stance the previous week.
During the second week of October, the federal funds rate moved lower, and by midmonth, market participants concluded that the Federal Reserve had indeed eased.