Fed policy makers projected a fourth-quarter U.S. contraction of 1.3 percent to 2 percent from a year earlier, according to minutes of an April 28-29 meeting released yesterday. That compares with January projections for a contraction of 0.5 percent to 1.3 percent.
U.S. unemployment surged to 8.9 percent in April, a level not seen since 1983. WASHINGTON (MarketWatch) -- Federal Reserve officials considered how and when it might make sense to boost the central bank's open market purchases of bonds and other long-term securities, including Treasurys, according to the minutes of their closed-door meeting in late April. Some Fed officials were in favor of buying more securities "at some point" to give the economy a greater kick. The central bankers discussed when it might make sense to purchase the assets and how they would communicate their intentions to financial markets. At the end of their meeting, the FOMC announced that it was holding policy steady and said it would "continue to evaluate the scope and timing of its purchases in light of broader economic developments." The minutes did not detail any of the factors that might persuade the Fed to step up the pace of purchases. The Fed has already agreed to buy $1.25 trillion of agency mortgage-based securities and up to $200 billion in agency debt by the end of the year, and up to $300 billion of Treasury securities by autumn. While recognizing that the downturn was starting to loose its force, the tone of the discussions was not very upbeat. Officials emphasized the tentative nature of the incoming data. They noted how difficult it was in past recession to correctly predict a turnaround. Fed officials said they had read the economic research that argued that economic downturns triggered by financial crises have generally been more protracted than other recessions. "In particular, while financial strains and risk spreads had lessened somewhat...participants agreed that the global financial system remained vulnerable to shocks," according to the minutes. Some sectors will never recover to past levels of employment, Fed officials noted. Demand for U.S. exports would also take time to revive. The central bankers were forced to lower their forecast for growth this year given the weakness in the first quarter. But the central bankers stuck to their prediction of a rebound in the second half of this year. However, the recovery was seen as very gradual. Even so, some FOMC members thought the housing market might finally be approaching a trough. It might take five years or more before the unemployment rate would return below 5%. According to the minutes, the Fed staff was a little more optimistic. The staff raised its projections for economic activity in the second half of 2009 and next year. Inflation Inflation seemed a remote concern in the minutes. Most members of the FOMC said they expected inflation to remain subdued over the next few years. Risks of deflation had ebbed since the last FOMC meeting in March. However, there were some who worried about inflation if the Fed cannot reverse course on its quantitative easing policy. A few said it was simply a bad idea to forecast inflation during a severe recession. The staff raised its near-term estimate of inflation but said this would be followed by a deceleration in core inflation. Most FOMC members said a longer-run inflation rate of 2% would be consistent with price stability, but a few favored a range of 1.5%-1.75%. In another matter, a Fed subcommittee reported that it is against disclosing the names of firms who have borrowed from Fed facilities. It would very likely discourage use of Fed programs because "prospective borrowers would see borrowing from the Fed as a sign of financial weakness." -- Thanks & Regards, Abhishek Kothari --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
