FACTBOX: FOMC's views on the falling dollar

NEW YORK (Reuters) - The Federal Reserve's policy-setting Federal Open Market Committee has taken note of the weakening U.S. dollar in its meetings this year and has voiced growing concern about the dollar's potential to fan inflation.

The dollar has fallen 6 percent against the euro so far this year, hitting record lows. On a trade-weighted basis, the dollar has declined 5.7 percent against a broad group of currencies to the lowest level in more than a decade, according to a Federal Reserve index.

As early as May, officials were noting the risk of higher inflation from a falling dollar. FOMC members have also cited the potential boost to economic growth that could come from the stronger export performance a weaker dollar could bring.

Minutes of a September 18 FOMC meeting released on Tuesday stated bluntly: "Inflation risks could be heightened if the dollar were to continue to depreciate significantly."

At the same meeting, the FOMC agreed to reduce the federal funds rate by a half percentage point to ensure the economy was not dragged down further by ongoing housing market weakness.

The following are excerpts from 2007 FOMC meeting minutes that touch on the dollar's value:

MAY 9 MEETING:

"Prices of non-energy commodities, especially metals, had moved up markedly since the previous meeting. Moreover, inflationary pressures in a number of overseas economies appeared to have increased of late, perhaps partly in response to heightened levels of capacity utilization in those countries, and this development had the potential to add to the prices of U.S. imports. In that regard, several participants noted that the decline in the foreign exchange value of the dollar over the intermeeting period could reinforce the upward pressure on import prices."

JUNE 27-28 MEETING:

"Strength in spending abroad and the decline in the exchange value of the dollar were seen as factors boosting U.S. exports."

"Moreover, a number of forces could sustain inflation pressures, including the generally high level of resource utilization, elevated energy and commodity prices, the decline in the exchange value of the dollar over recent quarters, and slower productivity growth."

AUG. 7 MEETING:

"Rapid economic growth abroad and the decline in the foreign exchange value of the dollar in recent quarters were seen as likely to boost U.S. exports and thus support the economic expansion."

"Participants remained concerned about factors that could augment inflation pressures, including the continuing high level of resource utilization and slower trend growth in productivity. Some also pointed to the strength of aggregate demand worldwide and the depreciation of the dollar, and their potential effects on the prices of imports and globally traded commodities, as contributing to upside risks to U.S. inflation."

SEPT. 18 MEETING:

"Higher benefit costs, rising unit labor costs more generally, reduced markups, and levels of resource utilization both in the United States and abroad that remained relatively high were all cited as factors that could contribute to inflationary pressures. Inflation risks could be heightened if the dollar were to continue to depreciate significantly."