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Fed Minutes Show Expectations Of Economic Recovery At Moderate Pace


Participants in the latest Federal Open Market Committee meeting in March agreed that economic activity continued to strengthen and that the labor market appeared to be stabilizing, according to the minutes of the meeting released on Tuesday.

While the data on economic activity received since the January meeting was somewhat mixed, the members of the committee felt that it generally confirmed that the economic recovery was likely to proceed at a moderate pace.

The minutes said the recent data provided positive signs for retail sales, business spending, and goods exports as well as mildly encouraging signs regained the labor market.

At the same time, housing starts remained at depressed levels, investment in non-residential structures declined and government spending was depressed by lower revenues. Consumer sentiment also continued to be damped by weak labor market conditions, the FOMC said.

On the inflation front, the FOMC generally anticipated that inflation would be subdued for some time due to stable longer-term inflation expectations and the likely continuation of substantial resource slack.

"While participants saw incoming information as broadly consistent with continued strengthening of economic activity, they also highlighted a variety of factors that would be likely to restrain the overall pace of recovery," the minutes said.

Specifically, the FOMC noted that while recent data pointed to a noticeable pickup in the pace of consumer spending, the participants agreed that spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth.

Based on this assessment of the economy, the committee members agreed that it would be appropriate to maintain the target range for the federal funds rate at 0 to 1/4 percent.

The FOMC also agreed to complete its previously announced purchases of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt by the end of March.

Most of the committee members also agreed that it was appropriate to reiterate the expectation that economic conditions were likely to warrant exceptionally low levels of the federal funds rate for an extended period.

However, Kansas City Federal Reserve President Thomas M. Hoenig believed that communicating such an expectation would create conditions that could lead to financial imbalances, and he subsequently voted against the policy action.

The minutes showed that Hoenig believed that it would be more appropriate for the committee to express its anticipation that economic conditions were likely to warrant "a low level of the federal funds rate for some time."

"He further believed that making such an adjustment to the Committee's target for the federal funds rate sooner rather than later would reduce longer-run risks to macroeconomic and financial stability while continuing to provide needed support to the economic recovery," the FOMC said.

The FOMC will hold its next two-day meeting beginning on Tuesday, April 27, with the announcement of its next decision on interest due at about 2:15 pm ET on Wednesday.

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