Summary of FOMC minutes
In light of severe stresses in dollar funding markets, the Committee considered a proposal intended to provide the flexibility necessary to respond promptly to requests from foreign central banks to engage in temporary reciprocal currency ("swap") arrangements to be used in supporting dollar liquidity in their jurisdictions.
After the discussion, the Committee voted unanimously to authorize its Foreign Currency Subcommittee to direct the Federal Reserve Bank of New York as needed to expand existing swap arrangements and to enter into new arrangements with foreign central banks to address strains in money markets. This authority extends through January 30, 2009...
The information reviewed at the September meeting indicated that economic activity decelerated considerably in recent months. The labor market deteriorated further in August as private payrolls declined and the unemployment rate moved markedly higher.
Industrial output was little changed in July, but fell sharply in August. Consumer spending weakened noticeably in recent months.
Meanwhile, residential investment continued to decline steeply through midyear. In contrast, business investment in equipment and structures generally held up through July. On the inflation front, overall consumer prices rose rapidly for a third straight month in July but then edged down in August, because of a sharp drop in energy prices.
Core consumer price inflation remained elevated in July and eased somewhat in August. The labor market continued to weaken...
At its August meeting, the Federal Open Market Committee (FOMC) kept the target federal funds rate unchanged at 2 percent. The Committee's statement noted that economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets had softened further and financial markets remained under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices were likely to weigh on economic growth over the next few quarters...
Although downside risks to growth remained, the upside risks to inflation were also of significant concern to the Committee. The Committee indicated that it would continue to monitor economic and financial developments and would act as needed to promote sustainable economic growth and price stability...
With substantial downside risks to growth and persisting upside risks to inflation, members judged that leaving the federal funds rate unchanged at this time suitably balanced the risks to the outlook.
Some members emphasized that if intensifying financial strains led to a significant worsening of the growth outlook, a policy response could be required; however, such a response was not called for at this meeting.
Indeed, it was noted that, with elevated inflation still a concern and growth expected to pick up next year if financial strains diminish, the Committee should also remain prepared to reverse the policy easing put in place over the past year in a timely fashion.
AI
