The March 17-18 FOMC minutes showed that the motivation for a dramatic expansion of the Fed's asset purchase programs was a weaker tone of economic data and extraordinarily stressed financial markets since the prior FOMC meeting, say the analysts at UBS. According to the minutes substantial additional purchases of longer-term assets would provide further monetary stimulus to help address the very weak economic outlook and reduce the risk that inflation could persist for a time below rates that best foster longer-term economic growth and price stability.

According to the minutes, nearly all meeting participants said that conditions had deteriorated relative to their expectations at the time of the January meeting. The minutes showed that several participants said that the degree and pervasiveness of the decline in foreign economic activity was one of the most notable developments since the January meeting. In light of this development, it was widely agreed that exports were not likely to be a source of support for U.S. economic activity in the near term.

In addition, the minutes noted that Several [members] expressed concern that inflation was likely to persist below desired levels, with a few pointing to the risk of deflation. Without providing any specific details, the minutes also showed that the Fed staff marked down its forecasts for growth in the second half of 2009 and in 2010.

Perhaps one of the more interesting bits of information within the minutes was the specific reference about private sectors' concerns about participating in government sponsored programs. According to the minutes: Participants shared comments received from financial industry contacts on their experiences with and concerns about recent government programs to stabilize the financial system. These contacts feared that uncertainties about future actions the government might take and future regulations it might impose were making it more difficult to plan and were discouraging participation in government efforts to stabilize the financial system. Participants agreed that a credible and widely understood program to deal with the troubles of the banking system could help restore business and consumer confidence. Many viewed the strengthening of the banking system as essential for a sustained and robust recovery.

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