Fed Minutes Show Members Remain Concerned About Downside Risks

The minutes of the latest Federal Open Market Committee meeting in March showed that nearly all of the meeting participants felt that economic conditions had deteriorated relative to their expectations at the time of the January meeting.

FOMC members felt that an apparent sharp fall in foreign economic activity was of particular note, as it was having a negative effect on U.S. exports.

In light of the pervasive decline in foreign economic activity, members widely agreed that exports are not likely to be a source of support for U.S. economic activity in the near term.

The minutes, released Wednesday afternoon, also said that the committee members agreed that substantial additional purchases of longer-term assets eligible for open market operations would be appropriate.

While one member preferred to focus additional purchases on longer-term Treasury securities, another member preferred to focus on agency mortgage-backed securities.

However, the minutes said that both could support expanded purchases across a range of assets, and several members noted that working across a range of assets and instruments was appropriate when the effects of any one tactic were uncertain.

The members ultimately agreed to purchase up to $750 billion of agency MBS and up to $100 billion of agency debt, along with up to $300 billion of longer-term Treasury securities.

The FOMC said that it believed that purchases of these amounts would help to promote a return to economic growth and price stability.

As was expected, the committee members also agreed to keep the target range for the federal funds rate at 0 to 1/4 percent. The FOMC also said that the federal funds rate is likely to remain exceptionally low for an extended period.

The minutes showed that the vote in favor of the asset purchases and the decision to leave the federal funds rate unchanged was unanimous.

Additionally, the FOMC said that it was agreed that the next committee meeting would be held on April 28-29, 2009.

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