Federal Open Market Committee Minutes for April 29-30 Meeting
Provided by: Federal Reserve
Official Release: HTML PDF

The Federal Reserve seems ready to stay on the sidelines and the decision to cut rates by 25 basis points was a "close call." The risks to growth and inflation are now balanced and only "significant weakening of the economic outlook" would force another interest rate cut. Inflation expectations were put higher, with the personal consumption index expected to jump to a range of 3.1 to 3.4% compared to the previous forecast of a 2.1% to 2.4% rise. Also, the worst part of the credit crisis seems to have passed. The Fed did also reduce their projections for economic growth this year by almost a full percentage point. Expectations are now for growth to increase by 0.3% to 1.2% this year.

The minutes did not do much to strengthen the Dollar on a day of Dollar weakness, so the markets may have priced in the pause and have not gleamed new information. Only a change of language regarding inflation's risks, and the talk of raising interest rates would have supported the Dollar. US stocks were reeling today, and the Dollar's losses intensified against the Yen.

From the Release: " The Committee agreed that that the statement to be released after the meeting should take note of the substantial policy easing to date and the ongoing measures to foster market liquidity. In light of these significant policy actions, the risks to growth were now thought to be more closely balanced by the risks to inflation. Accordingly, the Committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth. Given these circumstances, future policy adjustments would depend on the extent to which economic and financial developments affected the medium-term outlook for growth and inflation. In that regard, several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook."

Provided by: The Federal Reserve
Official Release: Statement

Two members dissented against the rate cut, as policy makers strengthened their language against inflation. After a knee-jerk reaction in which the Dollar gained, it was moderately lower against its rivals in the 30 minutes after the release. The Fed painted a rather weak picture of the economy, but that the recent cuts should work to help growth going forward. The statement may not have been as hawkish as some had hoped, as it leaves options open for the Fed in terms of its next move.

From the Release:

""Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."

"Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months...uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully."

Federal Open Market Committee Minutes for March 17-18 Meeting
Provided by: Federal Reserve
Official Release: HTML PDF

FOMC meeting minutes re-iterated some of the things Bernanke has been saying recently, most importantly that Fed official see that a contraction in the economy during the first half of 2008, with several members believing that a "prolonged" and "severe" downturn could not be ruled out.

From the Release:

"In the Committee's discussion of monetary policy for the intermeeting period, most members judged that a substantial easing in the stance of monetary policy was warranted at this meeting. The outlook for economic activity had weakened considerably since the January meeting, and members viewed the downside risks to economic growth as having increased. Indeed, some believed that a prolonged and severe economic downturn could not be ruled out given the further restriction of credit availability and ongoing weakness in the housing market. Members recognized that monetary policy alone could not address fully the underlying problems in the housing market and in financial markets, but they noted that, through a range of channels, lower short-term real interest rates should help buoy economic activity and ameliorate strains in these markets."

Statement from the Federal Reserve

The Federal Reserve cut rates by 75 basis points, ignoring calls from some corners to cut rates by 100 basis points. There were two dissenting votes for the cut, from Dallas' Fisher and Philadelphia's Plosser, who have warned about the risks of inflation to the economy. The Dollar should be strengthened by the Fed move, and it saw some gains against the Euro, Yen and Pound in the minutes following the release.

From the Statement:

"Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters. Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully. Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability."

The Federal Reserve and FOMC

Discount Rate: 3.50%, forecast 3.50%, pr. 4.00%.

The Fed says in its statement:

"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets. The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."