Federal reserve expects the economy to improve in the coming months even though policy makers downgraded their outlook for all of 2009.
- Fed now expects the economy to shrink between -1.3 and -2% this year, slightly worse than the earlier forecast of -0.5% to 1.3% contraction.
- Unemployment is now expected to hit between 9.2% and 9.6%, up from 8.5% to 8.9% in the January forecasts. (April’s unemployment is already at 8.9%)
- Interest rate remained unchanged at close to 0.25% and took no other actions to boost the amount of money in the economy by increasing the size of the Fed’s balance sheet.
- But Fed is still considering purchases of mortgage agency and government securities to give the recovery an additional push.
“A further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery. All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases." – One minute member said.
- Treasury prices rallied after the minutes were released around 1PM (EST), pushing their yield, which moves in the opposite direction, down to 3.18%.
- Stocks, which have moved sharply higher during the past two months on hopes that the recession may soon be ending, fell Wednesday afternoon.
"I read [the minutes] as 'We think it's working, let's wait a few months to see how it plays out” – Gus Faucher (Director of macroeconomics Moody’s)
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