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Federal Reserve officials see a stronger US economy but a recovery "restrained" by high unemployment and challenging credit conditions, minutes issued on Wednesday show. The dollar fell after expectations of continued low interest rates, were signalled by a low inflation outlook.
The minutes of the September 22-23 meeting of the Federal Open Market Committee (FOMC) show worries about unemployment and the strength of the recovery.
Some policymakers said expanding the central bank’s $1.25 trillion mortgage-backed securities purchase program may help boost the economy amid concerns the recovery may fade.
“Some members thought that an increase in the maximum amount of the committee’s purchases of agency MBS could help to reduce economic slack more quickly,” according to minutes. One member said the improvement in the outlook could warrant a reduction in purchases.
Market insight and reaction to the FOMC minutes, with Zane Brown, Lord Abbett; Jim Bianco, Bianco Research; Clem Chambers, ADVFN; Charles Crane, Douglass Winthrop Advisors; and CNBC's Erin Burnett:
A staff projection used by policymakers showed some larger gains in employment than previously forecast, but unemployment holding as high as 9.25 percent by the end of 2010 and then falling to about 8.0 percent by the end of 2011.
Staff also raised their forecast for the second half of this year and projected that growth would strengthen further in 2010 and in 2011 despite the reversal of fiscal stimulus.
Despite this stronger outlook for growth, the staff “forecast core inflation to slow somewhat further over the next two years from the pace of the first half of 2009.”
The minutes signalled that participants "agreed that the incoming data and information received from business contacts suggested that economic activity had picked up following its severe downturn."
Many Fed officials revised their projections for economic activity in the second half of 2009 and beyond, on the basis of data showing steadying housing and consumer spending as well as other factors.
"Despite these positive factors, many participants noted that the economic recovery was likely to be quite restrained," the minutes showed.
The minutes also confirm that the Fed is looking at conducting “reverse repurchase agreements on a large scale, potentially with counterparties other than the primary dealers” to mop up excess liquidity. The other counterparties envisaged prominently include money market mutual funds.
Joseph Stiglitz, the 2001 Nobel Prize winner in economics and a professor at Columbia University, shares his economic outlook:
