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Wednesday afternoon, the Federal Reserve released the minutes of the latest Federal Open Market Committee meeting, showing that participants' views about the economic outlook had not changed appreciably since the previous meeting.
The minutes showed that the participants saw the economic news as broadly in line with the expectations for moderate growth and subdued inflation in 2010 that they held when the Committee met in mid-December. Financial conditions were also seen as much the same.
Nonetheless, there was still an upward revision to the lower end of the Fed's projection for real GDP growth in 2010. The Fed now expects real GDP growth of 2.8 to 3.5 percent compared to the previous forecast for growth of 2.5 to 3.5 percent.
The upward revision may reflect the belief among participants that the downside risks to the outlook for economic growth had diminished a bit further since the previous meeting.
Additionally, the Fed upwardly revised its expectations for core consumer price inflation in 2010, which was revised up to a range of 1.1 to 1.7 percent from a range of 1.0 to 1.5 percent.
The minutes also showed that policymakers were unanimous in the view that it would be appropriate to shrink the supply of reserve balances and the size of the Fed's balance sheet substantially over time.
Participants agreed that a policy of redeeming and not replacing agency debt and mortgage-backed securities as those securities mature or are prepaid would contribute to achieving both goals and thus would be appropriate, the Fed said.
Meanwhile, the meeting participants expressed a range of views about asset sales, with several saying that it is important to begin a program of asset sales in the near future to ensure that the Fed's balance sheet shrinks more quickly and in a more predictable manner.
The Fed noted, "A few suggested that the pace of asset sales, and potentially of purchases, could be adjusted over time in response to developments in the economy and the evolution of the economic outlook."
However, the FOMC made no decisions about asset sales at this meeting.
The minutes also said that the members agreed that no changes to the committee's large-scale asset purchase programs were warranted at this meeting, as the asset purchase programs were nearing completion and neither the economic outlook nor financial conditions had changed appreciably.
"Accordingly, the Committee affirmed its intention to purchase a total of $1.25 trillion of agency MBS and about $175 billion of agency debt by the end of the current quarter and to gradually slow the pace of these purchases to promote a smooth transition in markets," the Fed said.
While the members also agreed to leave the target range for the federal funds rate unchanged at 0.0 to 0.25 percent, there was some disagreement about whether to continue to say that economic conditions were likely to warrant exceptionally low rates for an extended period.
Kansas City Federal Reserve President Thomas Hoenig felt it was no longer advisable to indicate that conditions were likely to warrant low rates for an extended period, and he subsequently voted against the action by the FOMC.
In light of recent improvement in economic conditions, Hoenig was concerned that maintaining short-term interest rates near zero for an extended period would lay the groundwork for future financial imbalances and risk an increase in inflation expectations.
Hoenig believed that it would be more appropriate for the committee to express an expectation that the federal funds rate would be low for some time--rather than exceptionally low for an extended period, according to the minutes.
The FOMC is scheduled to make its next decision on interest rates after a meeting on March 16.
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