RTTNews - Members of the Federal Open Market Committee are more confident that the economic downturn is ending and that growth is likely to resume in the second half of the year, according to the minutes of the August FOMC meeting released on Wednesday.
The committee members said that their projections for the second half of 2009 and for subsequent years had not changed appreciably since the June meeting, except that they now saw smaller downside risks.
Nonetheless, while the members saw signs of stabilization in consumer spending and housing, most agreed that the economy is likely to recover only slowly during the second half of this year and all saw it as still vulnerable to adverse shocks.
The members of the FOMC, the policy-setting arm of the Federal Reserve, also noted that conditions in the labor market remained poor, with their business contacts indicating that firms would remain caution in hiring even when demand picks up.
Looking further ahead, the committee members expect the pace of recovery to pick up in 2010, although there was considerable uncertainty about the strength of the upturn, particularly with regard to consumer spending and credit conditions.
With regard to monetary policy, the committee members unanimously agreed that the target range for the federal funds rate should remain at 0.0 to 0.25 percent in light of the prospects for an initially modest economic recovery, substantial resource slack, and subdued inflation.
Additionally, while the future path of the federal funds rate would depend on the evolving outlook, the members agreed that the rate would most likely need to be maintained at an exceptionally low level for an extended period.
The FOMC members also agreed that neither expansion nor contraction of its program of asset purchases was warranted at this time.
However, the committee did decide to gradually slow the pace of the remainder of its purchases of $300 billion of Treasury securities and extend their completion to the end of October to help promote a smooth transition in markets.
On Tuesday, the New York Federal Reserve purchased $5.6 billion worth of long-term bonds with maturity dates ranging from May of 2012 to November of 2013. Overall, the Fed has purchased a total of $276.26 billion in treasuries since the program began on March 25th.
The minutes showed that the FOMC members agreed to continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.
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