The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the minutes of the Committee meeting held on April 28-29, 2009.
From Fed: The information reviewed at the April 28-29 meeting indicated that the pace of decline in some components of final demand appeared to have slowed recently. Consumer spending firmed in the first quarter after dropping markedly during the second half of 2008 [Fed now sees the economy shrinking between 1.3 and 2 percent this year, slightly worse that the earlier forecast of a contraction between 0.5 and 1.3%]. Housing activity remained depressed but seemed to have leveled off in February and March. In contrast, businesses cut production and employment substantially in recent months—likely reflecting, in part, inventory overhangs that persisted into the early part of the year—and fixed investment continued to contract.
Headline and core consumer prices rose at a moderate pace over the first three months of the year…Labor market conditions deteriorated further in March. [The Fed said it now expects the unemployment rate to hit nearly 10%, up from 8.8% in the old forecast.]
The decision by the Federal Open Market Committee (FOMC) at the March meeting to leave the target range for the federal funds rate unchanged was widely anticipated and had little effect on short-term money markets. However, investors were apparently surprised by the Committee’s announcement that it would increase significantly further the size of the Federal Reserve’s balance sheet by purchasing up to $300 billion in Treasury securities and expanding purchases of agency MBS and agency debt.
In their discussion of monetary policy for the intermeeting period, Committee members agreed that the Federal Reserve’s large-scale securities purchases were providing financial stimulus that would contribute to the gradual resumption of sustainable economic growth in a context of price stability. Members also agreed that it would be appropriate to continue making purchases in accordance with the amounts that had previously been announced—that is, up to $1.25 trillion of agency MBS and up to $200 billion of agency debt by the end of this year, and up to $300 billion of Treasury securities by autumn. Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery; all members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases. The Committee reaffirmed the need to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of economic and financial developments.
All members agreed that the statement should note that the timing and overall amounts of the Committee’s asset purchases would continue to be evaluated in light of the evolving economic outlook and conditions in financial markets.