WASHINGTON — Federal Open Market Committee members said downside risks to the economy will prevail in the short term, according to minutes from its March 17-18 meeting released yesterday. Economic activity "fell sharply" in the months leading up to the meeting, the minutes noted.
During the decision to purchase Treasury securities and agency debt, FOMC members saw a low risk to the Fed's credibility in the face of weakening economic conditions "so long as the Fed was clear about the importance of its long-term price stability objective and demonstrated a commitment to take the necessary steps in the future to achieve its objectives," according to the minutes.
"Participants did not interpret the uptick in housing starts in February as the beginning of a new trend, but some noted that there was only limited scope for housing activity to fall further. Nonetheless, large inventories of unsold homes relative to sales and the prospect of a continued high level of distressed sales would continue to hold down residential investment in the near term."
Several committee members noted tentative signs of stabilization in consumer spending in January and February. "However, others suggested that strains on household balance sheets from falling equity and house prices, reduced credit availability, and the fear of unemployment could well lead to further increases in the saving rate that would damp consumption growth in the near term," the minutes said.
