October 15, 2009
The U.S. Federal Reserve (Fed) policymakers saw the economy is emerging from recession, but the recovery is "restrained" by high unemployment and still tight credit, according to documents released on Wednesday.
Minutes of the Federal Open Market Committee (FOMC), the Fed's monetary policy decision meeting held on Sept. 22-23, showed that Fed Chairman Ben Bernanke and his colleagues saw much more positive signs about the economy's prospects compared with an assessment made in August. Many Fed officials raised their "projection for real GDP growth over the second half of 2009 and over 2010."
"Developments in financial markets were again regarded as broadly positive; participants saw the cumulative improvement in market functioning and pricing since the spring as substantial," the statement said.
However, the statement added that "despite these positive factors, many participants noted that the economic recovery was likely to be quite restrained."
The report noted that some of the upturn in the economy "probably reflected government policy support," and that Fed officials "expressed considerable uncertainty about the likely strength of the upturn once those supports were withdrawn or their effects waned."
"Credit from banks remained difficult to obtain and costly for many borrowers; these conditions were expected to improve only gradually.
"In light of recent experience, consumers were likely to be cautious in spending, and business contacts indicated that their firms would also be cautious in hiring and investing even as demand for their products picked up," the statement said.
The Fed officials anticipated that "slack in both labor and product markets would be substantial over the next few years, leading to subdued and potentially declining wage and price inflation."
Latest data showed that the unemployment rate has reached 9.8 percent. Many economists expected the figure will pass double digit mark.
The minutes showed Fed members "see some risk of substantial further disinflation, but that risk had eased somewhat further over the inter meeting period."
The Fed said that "with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time."
The central bank said that it will "maintain the target range for the federal funds rate at 0 to 1/4 percent" and to keep the rate at this historical low "for an extended period."