Fed Downgrades Its Outlook On The Economy

The FOMC minutes were just released from its recent 10/28 - 10/29 meeting. Here are the highlights:

• The information reviewed at the October meeting indicated that economic conditions deteriorated in recent months. The labor market weakened further in September as private payrolls fell at a faster pace than earlier in the year and the unemployment rate remained above 6 percent.
• Industrial production fell in September, although much of the drop was related to effects of recent hurricanes and a strike at an aircraft manufacturer. Consumer spending declined, reflecting stagnant real income, tighter credit, declining wealth, and concerns about economic conditions.
• The housing market remained weak, with construction activity, new home sales, and home prices falling further. Business spending on equipment and software appeared to have declined again in the third quarter, and indicators of investment in structures weakened.
• Economic activity in many foreign economies slowed in recent months. Headline consumer inflation measures, pulled down by declines in consumer energy prices, moderated in August and September.
• Core consumer inflation measures also eased somewhat in these two months
• Participants projections for real GDP growth in 2008 had a central tendency of 0-0.3%, compared with the central tendency of 1.0-1.6% for the growth projections that were made last June.
• The downward revisions in their growth forecasts for the year as a whole were due almost entirely to substantial shifts in their views of second-half growth
• Participants growth projections had a central tendency of -0.2 to 1.1% for 2009, 2.3 to 3.2% for 2010, and 2.8 to 3.6% for 2011, as most participants expected that the near-term weakness in economic activity would continue into next year and that the subsequent recovery would be relatively gradual
• Participants agreed that inflation was likely to diminish materially in coming quarters. Commodity prices had fallen sharply, the dollar had strengthened notably, and considerable economic slack was anticipated.
• Over the past year, the Federal Reserve's response to the financial turbulence had encompassed substantial monetary policy easing, the provision of large volumes of liquidity through standard and extraordinary means, and facilitating facilitating the resolution of troubled, systemically important financial institutions. Participants judged that the policy actions had been helpful and well calibrated to their assessment of the developing situation. Several participants observed that it would be crucial for such policy actions to be unwound appropriately as the financial situation normalized.
• However, participants also observed that unfolding economic developments could require the FOMC to further lower its target for the federal funds rate in the future and to review the adequacy of its liquidity facilities.

Overall, the Fed is acknowledging that growth will slow for the next few quarters, and that a recovery could be gradual. Also, they realize that the current 1.0% fed funds rate could still be too high. Could the Fed actually take rates to 0%?!? (Japan did)