WASHINGTON  Federal Reserve policymakers grew increasingly worried about the economy last month, with "several" officials noting there was a very real possibility of an actual downturn, according to minutes of meetings.

The minutes released Wednesday also showed continued concern about inflation, with some Fed officials arguing interest rate cuts may have to be reversed at a quick pace when the economy improves.

"Several participants noted that the risks of a downturn in the economy were significant," the account of the Jan. 29-30 meeting said. While not using the "R" word, the minutes revealed a gloomy mood at the Fed. Housing, manufacturing, business investment and the job market all weakened, while financial market turmoil persisted and credit tightened. There was concern that drops in home and stock prices and general economic uncertainty would lead consumers to substantially pull back. And slower growth abroad would reduce the lift the economy had received from U.S. exports.

Fed Chairman Ben Bernanke, who repeated last week that he expects the USA to skirt a recession, and his colleagues last month aggressively cut their target for short-term interest rates from 4.25% to 3%. The reduction, which came in two moves in nine days, was the steepest in decades and brought the rate to its lowest in 2½ years.

The first action, a three-quarter-percentage-point cut, came a day after Fed officials met via videoconference on Jan. 21, a government holiday, as financial markets abroad were tumbling. Policymakers felt an immediate rate cut would show the Fed was determined to "act decisively," which "might reduce concerns about economic prospects."

The second cut came Jan. 30, at the end of a scheduled meeting.

The minutes also revealed for the first time that Fed officials met via videoconference on Jan. 9, the day before Bernanke gave a speech in which he vowed to "take substantive additional action as needed."

On inflation, incoming data last month were "disappointing," but policymakers expected price pressures to ease. Still, Fed officials were mindful that leaving rates low for too long could lead to a buildup in inflationary pressures.

"When prospects for growth had improved, a reversal of a portion of the recent (rate)-easing actions, possibly even a rapid reversal, might be appropriate," the minutes said.

Says National City (NCC) chief economist Richard DeKaser, "Once the economy has stabilized, it will not be long thereafter that the Fed will be on a rate-increasing campaign."

He predicts the Fed will cut rates once more at its next meeting March 18. With the economy on the mend, the Fed will start raising rates around the end of the year or the start of 2009, DeKaser says.

Enlarge By Amy Sancetta, AP Food is bagged at the check out of the Heinen's grocery store in Bainbridge Township, Ohio. The Fed is forecasting that inflation will be worse than previously expected.