Fed Officials Wary About Signs of Upturn

Washington, DC, May 21, 2009--Federal Reserve officials are not convinced that recent signs of stabilization in the economy will continue.

At its April meeting, the Fed saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks,” according to minutes of the session released Wednesday.

The report indicates that Fed officials may be ready to build on their plan in March to buy $300 billion of Treasuries should the economy or financial markets deteriorate further.

The minutes also updated economic projections from the 17 Fed policy makers, who forecast a deeper U.S. contraction than they foresaw in January, with a 9 percent unemployment rate lasting through the end of 2010.

Central bankers made their biggest cut yet to next year’s growth forecast, indicating the economy won’t rebound as quickly as previously anticipated. The jobless rate may remain as high as 8.5 percent in late 2011.

“Participants generally expected that strains in credit markets and in the banking system would ebb slowly, and hence the pace of recovery would continue to be damped in 2010,” the Fed said in the minutes. Economic growth will pick up in 2011 as financial conditions improve, the Fed said.

A firming in consumer confidence, industrial production and other areas of the economy indicate the recession may be easing. Output at factories, mines and utilities decreased 0.5 percent last month after dropping 1.7 percent in March, Fed figures showed last week.

That doesn’t necessarily mean policy makers are counting on continued improvement, yesterday’s report indicated.