U.S. Federal Reserve Board policymakers considered raising its key interest rate by half a percentage point at Fed’s May meeting, before opting for a quarter-point increase, because of fears that inflation could get worse.

Chairman Ben Bernanke and his colleagues also opted to leave the door open to additional rate increases “in view of the risk that the outlook for inflation could worsen,” according to minutes of the Fed’s May 10 meeting released on Wednesday.

The minutes showed that the Fed discussed a number of options, ranging from leaving rates unchanged to boosting them by a half percentage point.

Policy-makers then mulled these options over as they weighed whether it was more likely the economy would slow, given previous rate increases, or whether escalating energy prices might lead to broader inflation. In the end, they approved the quarter-point increase for the 16th consecutive time since June 2004.

That unanimous decision boosted the key lending rate to 5%, the highest level in five years. Policymakers considered this course of action to be appropriate in order “to keep inflation from rising and promote sustainable economic expansion,” according to the minutes.

The Fed said “a number of factors were augmenting the upside risks to inflation,” such as a rapid increase in energy prices as well as some commodity prices and a weaker U.S. dollar, which raises the prices of imported goods flowing into the U.S., thus giving U.S. producers more leeway to boost their own prices.

“Inflation pressures appeared to be somewhat greater than the committee had anticipated” when it gathered for its previous meeting in March, the minutes said.

Although it acknowledged some “downside risks to economic activity,” policymakers believed the most likely course was that the economy would moderate gradually over coming quarters, which would help restrain inflation pressures.

Nevertheless, the Fed was not clear what its next move might be. “Given the risks to growth and inflation, committee members were uncertain about how much, if any, further tightening would be needed” after the May increase, the minutes said.

The Fed also left its options for future rate decisions wide open. The board suggested another rate increase could be in store to fend off inflation or it could take a pause in their two-year rate-raising campaign if economic growth moderates.

The minutes also revealed that Bernanke appointed a panel to explore ways the Fed can improve the way it communicates with Wall Street and Main Street. The panel is chaired by Fed governor Donald Kohn.

Fed policymakers also said a cooling in the once red-hot housing market was especially noticeable for high-end homes and for houses in markets that had experienced the greatest increase to home prices. Speculative home building appeared to have dropped off considerably, although inventories of unsold homes were still expanding, the minutes said.

Policymakers also said that a surge in federal tax revenue was likely to help trim the federal budget deficit considerably. Still, the deficit remains “a serious concern” over the longer run.