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Federal Reserve Building 1937
FOMC Meeting Minutes and Summary of Economic Projections
"Pace of recovery to be held back by a number of factors"
GDP Projections Lowered & Unemployment Projections Raised
The short story on the realease of the FOMC meeting minutes was the economic recovery is going to take a few years (up to 5 or 6 years).
1) 2010 GDP central tendency projection was lowered to 3.0%-3.5% from 3.2%-3.5%
2) 2010 Unemployment Rate central tendency projection was raised slightly to 9.2%-9.5% from 9.1%-9.5%
Overall, the 17 FOMC members lowered their projections via the Summary of Economic Projections, which can be interpreted as a more negative view of the USA economic recovery. Sentiment is not as positive as the previous Summary compiled in April. "FOMC participants’ forecasts for economic activity and inflation suggested that they expected the recovery to continue and inflation to remain subdued, but with, on balance, slightly weaker real activity and a bit lower inflation than in the projections they made in conjunction with the April 2010 FOMC meeting. As depicted in figure 1, the economic recovery was anticipated to be gradual, with real gross domestic product (GDP) expanding at a pace only moderately above the participants’ assessment of its longer-run sustainable growth rate and the unemployment rate slowly trending lower over the next few years."
"Overall, participants continued to expect the pace of the economic recovery to be held back by a number of factors, including household and business uncertainty, persistent weakness in real estate markets, only gradual improvement in labor market conditions, waning fiscal stimulus, and slow easing of credit conditions in the banking sector."
The official statement and press release on June 23, 2010 by the Federal Open Market Committee was previously reviewed here with the headline summary "Economic Recovery Is Proceeding and Labor Market Is Improving Gradually".
FOMC Meeting Minutes
The FOMC meeting minutes were released July 14 and and portions of the staff summaries are below, wtih emphasis added. Overall, USA economic growth was seen as slowing as noted below "economic recovery was proceeding at a moderate pace".
"Moderate" has been the theme for the Fed as the FOMC noted "the pace of economic recovery is likely to be moderate for a time" in the FOMC Statement on June 23. The Fed Beige Book on June 9 noted continued, modest improvement of economic activity and conditions in the last 8 weeks. Chairman Ben Bernanke, also on June 9, stated to the House Committee on the Budget "the recovery in economic activity that began in the second half of last year has continued at a moderate pace so far this year".
Participants' Views of Current Conditions and the Economic Outlook
"In conjunction with this FOMC meeting, all meeting participants--the five members of the Board of Governors and the presidents of the 12 Federal Reserve Banks--provided projections of economic growth, the unemployment rate, and consumer price inflation for each year from 2010 through 2012 and over a longer horizon. Longer-run projections represent each participant's assessment of the rate to which each variable would be expected to converge over time under appropriate monetary policy and in the absence of further shocks. Participants' forecasts through 2012 and over the longer run are described in the Summary of Economic Projections, which is attached as an addendum to these minutes."
Summary of Economic Projections
Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, June 2010The central tendency excludes the three highest and three lowest projections for each variable in each year.
Change in Real GDP (%)
"Central Tendency" "Range" "Prior Central Tendancy" (April)
2010 3.0 to 3.5 2.9 to 3.8 3.2 to 3.7
2011 3.5 to 4.2 2.9 to 4.5 3.4 to 4.5
2012 3.5 to 4.5 2.8 to 5.0 3.5 to 4.5
Longer Run 2.5 to 2.8 2.4 to 3.0 2.5 to 2.8
Unemployment Rate (%)
"Central Tendency" "Range" "Prior Central Tendency" (April)
2010 9.2 to 9.5 9.0 to 9.9 9.1 to 9.5
2011 8.3 to 8.7 7.6 to 8.9 8.1 to 8.5
2012 7.1 to 7.5 6.8 to 7.9 6.6 to 7.5
Longer Run 5.0 to 5.3 5.0 to 6.3 5.0 to 5.3
Federal Open Market Committee Meeting Minutes; June 22 & 23, 2010
<Emphasis added by italics>
Staff Review of the Economic Situation
"The information reviewed at the June 22-23 meeting suggested that the economic recovery was proceeding at a moderate pace in the second quarter. Businesses continued to increase employment and lengthen workweeks in April and May, but the unemployment rate remained elevated. Industrial production registered strong and widespread gains, and business investment in equipment and software rose rapidly. Consumer spending appeared to have moved up further in April and May. However, housing starts dropped in May, and nonresidential construction remained depressed. Falling energy prices held down headline consumer prices in April and May while core consumer prices edged up."
Staff Review of the Financial Situation"The FOMC's decision at its April meeting to maintain the 0 to 1/4 percent target range for the federal funds rate and the wording of the accompanying statement were largely in line with expectations and prompted little market reaction. Economic data releases were mixed, on balance, over the intermeeting period, but market participants were especially attentive to incoming information on the labor market--most notably, the private payroll figures in the employment report for May, which were considerably weaker than investors expected. Those data, combined with heightened concerns about the global economic outlook stemming in part from Europe's sovereign debt problems, contributed to a downward revision in the expected path of policy implied by money market futures rates."
Staff Economic Outlook
"In the economic forecast prepared for the June FOMC meeting, the staff continued to anticipate a moderate recovery in economic activity through 2011, supported by accommodative monetary policy, an attenuation of financial stress, and strengthening consumer and business confidence. While the recent data on production and spending were broadly in line with the staff's expectations, the pace of the expansion over the next year and a half was expected to be somewhat slower than previously predicted. The intensifying concerns among investors about the implications of the fiscal difficulties faced by some European countries contributed to an increase in the foreign exchange value of the dollar and a drop in equity prices, which seemed likely to damp somewhat the expansion of domestic demand. The implications of these less-favorable factors for U.S. economic activity appeared likely to be only partly offset by lower interest rates on Treasury securities, other highly rated securities, and mortgages, as well as by a lower price for crude oil. The staff still expected that the pace of economic activity through 2011 would be sufficient to reduce the existing margins of economic slack, although the anticipated decline in the unemployment rate was somewhat slower than in the previous projection."
Committee Policy Action
"In their discussion of monetary policy for the period ahead, members agreed that it would be appropriate to maintain the target range of 0 to 1/4 percent for the federal funds rate. The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside. Nonetheless, all saw the economic expansion as likely to be strong enough to continue raising resource utilization, albeit more slowly than they had previously anticipated. In addition, they saw inflation as likely to stabilize near recent low readings in coming quarters and then gradually rise toward more desirable levels. In sum, the changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place."
FOMC Statement: June 23, 2010
Federal Open Market Committee
Release Date: June 23, 2010
For immediate release
Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.
Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.
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