The Federal Reserve just released the minutes from its meeting held three weeks ago.
“The U.S. economy is likely to deteriorate further this year and unemployment will rise into 2010, according to the latest forecasts from the staff of the Federal Reserve.
“This bleak forecast was presented to Fed policymakers when they met last month and lowered interest rates to near zero. Low interest rates are one key tool the central bank uses to try to spur economic activity.
“According to the minutes from that meeting, the central bank is now predicting that gross domestic product, the broadest measure of economic activity will fall in 2009.
“The Fed indicated that most members at its meeting expected a slow recovery to begin in the second half of the year, but that unemployment would still rise “significantly” into 2010.”
This is very different from the Fed’s earlier forecast and it confirms my view that the Fed will let the dollar slide.
“The Fed cited a multitude of problems dragging down the economy besides rising unemployment, including stock market declines, low consumer confidence, weakened household balance sheets and tight credit conditions. It said business spending is also likely to fall due to weak retail sales and the credit crunch.
“In addition, some members of the Fed expressed concerns that the economy could worsen even more than currently expected.
“Meeting participants generally agreed that the uncertainty surrounding the outlook was considerable and that downside risks to even this weak trajectory for economic activity were a serious concern,” the Fed said in the minutes.
“The minutes also showed that some Fed members are now more worried about the threat posed by deflation, or falling prices, than they are about inflation. Deflation can slow economic activity dramatically since it could lead to businesses to cut their production plans in the wake of lower prices.”