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FOMC Minutes Portray a Pessimisstic Fed

""Minutes"":http://www.federalreserve.gov/monetarypolicy/fomcminutes20110809.htm released by the ""Federal Reserve"":http://www.federalreserve.gov/ Tuesday portrayed the last Federal Open Market Committee (FOMC) meeting as one given to doubts about the health of the U.S. economy, housing recovery, and global markets. Discussions between the nation's central bank presidents reveal concern over the state of the economy and the Fed's ability to promote positive capital movements.


Fears at the top of the Fed's decision-making ladder ranged from low house prices to consumer confidence and trouble in debt-afflicted euro zone markets.

The minutes noted that ""many participants pointed to the recent downward revision to estimates of economic activity over the past three years,"" while others nodded at ""the financial market strains seen during the intermeeting period, as contributing to a downgrade of the outlook for the economy.""

These and other grim-looking trends convinced participants to see ""increased downside risks to the outlook for economic growth.""

After discussions about manufacturing production and consumer spending patterns, the gathered directors addressed conditions in the housing and real estate markets.

""The housing market remained depressed,"" the minutes read.

Discussions about housing centered on southerly sales for new and existing single-family homes, alongside low home prices and permit issuances.


The minutes noted that an ""overhang of foreclosed or distressed properties"" coupled with weak demand continued to crimp new home construction, doing nothing to allay an ""environment of uncertainty"" made less sure by ""future home prices and tight underwriting standards for mortgage loans.""

The gloomy conversations continued with discussions about still-pale commercial real estate markets and lumbering issuances for commercial mortgage-backed securities, with rates for fixed-rate mortgage loans entering center-stage given their refinancing activity and outstanding debt for residential loans.

The minutes also noted the directors as finding improvement ""in consumer credit markets├â┬ó├óÔÇÜ┬¼├é┬ª [with]├â┬ó├óÔÇÜ┬¼├é┬ª consumer credit expand[ing] at a moderate rate in May as both nonrevolving [sic] and revolving credit posted gains.

""Nonetheless, banks also indicated that the current levels of their lending standards for all loan types were between moderate and relatively tight when compared with the range of standards that had prevailed since 2005,"" the minutes found the central bankers as saying.

Notably, the minutes revealed the doubts felt by the three central bank presidents who dissented in the Fed's decision to keep interest rates low.

Dallas Fed president Richard Fisher expressed concerns that the FOMC ""did not have enough information to be specific on the time interval over which it expected low rates to be maintained, and that, were it to do so, the Committee risked appearing overly responsive to the recent financial market volatility.""

Fisher cast blame on non-monetary elements in the economy for new worries about a slowdown, citing ""uncertainty about fiscal and regulatory initiatives,"" and said they were ""restraining domestic capital expenditures, job creation, and economic growth.""

Charles Plosser, head of the central bank of Philadelphia, felt that a move to explicitly keep rates low for two years would portray ""an excessively negative assessment of the economy and that it was premature to undertake, or be perceived to signal, further policy accommodation.""

According to the minutes, he felt such a move ""would do little to improve near-term growth prospects"" for the economy at large.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.

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