Inflation worries Fed, but low rate doesn't

WASHINGTON -- Even as they grappled with inflation worries, most Federal Reserve officials at their August meeting didn't think the Fed's key interest rate was too low, given harder-to-get credit conditions straining consumers and businesses alike.

Documents released Tuesday provided insight on the Fed's thinking at the Aug. 5 meeting, when central bank policymakers decided to hold its key rate steady at 2 percent for the second straight meeting. Confronted by problems at every turn -- rising unemployment, shaky growth, credit troubles and creeping inflation -- the Fed took a gamble that the best move, once again, was none at all.

But looking ahead, the next direction for rates is probably up, according to the documents.

"Although members generally anticipated that the next policy move would likely be a tightening," the timing was far from clear and depended on incoming barometers on economic growth and inflation. Speaking last week at a high-profile economic conference in Jackson Hole, Wyo., Fed Chairman Ben Bernanke signaled that rates would likely stay at 2 percent at the Fed's next meeting, Sept. 16, and probably through the rest of this year. Some fear that keeping rates at this level, a four-year low, could aggravate inflation down the road.