Fed Minutes Reflect a Pessimistic View

In the minutes from the Federal Open Market Committee's March 18 policy meeting, officials appear to be "bracing for a recession," says the Wall Street Journal's Real Time Economics blog. In a note to clients, Goldman Sachs analysts also noted the Fed's pessimism: "The minutes...reflect a more dour assessment of the economy and an increased recognition that monetary policy may have to remain supportive for some time." Here's the Goldman Sachs take:

Views among the staff and FOMC appear fairly similar to our own in several respects. First, the majority appear to expect growth to revive somewhat in the second half of the year, but decelerate once again to some extent in the first half of 2009—a trajectory very similar to our own forecast. (One important difference here is that the staff has growth accelerating to an above-trend pace in 2009.) Second, although uncomfortable with current levels of inflation, they expect inflation to ease gradually. Third, they explicitly discussed the possibility of "an adverse feedback loop" in the credit markets—a mutually reinforcing spiral of tighter credit and a deteriorating economic outlook.

Tags: economy | recession | Federal Open Market Committee | Goldman Sachs

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