FOMC Minutes from March 17-18, 2009 Meeting

Passages I found interesting from the FOMC Minutes from March 17-18, 2009 meeting:

As of March 12, the System's total assets and liabilities were about $2 trillion, close to the level of that just before the January 27-28 meeting (p2).

Both headline and core consumer prices edged up in January and February (p3).

The civilian unemployment rate climbed 1/2 percentage point in February to 8.1 percent (p4).

Industrial production fell in January and February, with cutbacks again widespread, and capacity utilization in manufacturing declined to a very low level(p4).

The financial strain on households intensified over the previous several months; by the end of the fourth quarter, household net worth of for the first time since 1995 had fallen to less than five times disposable income, and substantial declines in equity and house prices continued early this year(p4).

In January, nominal shipments of nondefense capital goods excluding aircraft declined, and new orders fell significantly further. The fundamental determinants of equipment and software spending worsened appreciably: Business output dropped, and rising corporate bond yields boosted the user cost of capital in the fourth quarter(p4).

All major categories of exports decreased, especially sales of industrial supplies, machinery, and automotive products(p4).

In the United States, overall consumer prices increased in January and February, led by an increase in energy prices, after posting sizable declines late last year. Excluding the categories of food and energy, consumer prices edged higher in January and February after three months of no change(p5).

Measures of l onger-term expectations remained close to their averages over the past couple of years. Hourly eanring continued to increse at a moderate rate in February(p5).

Stock prices of insurance companies dropped sharply over the period, reflecting concerns about the adequacy of their capital positions(p5).

Gross bond issuance by non-financial firms was very stong in january and February, as investment-grade issuance more than doubled from its already solid pace in the foruth quarter; speculative grade issuance, however, remained sluggish. Trading conditions in the leveraged syndicated loan market improved slightly, but issuance continued to be very weak. Indexes of CDS spreads on AAA-rated CMBS widened to record levels, as Moody's downgraded a large portion of the 2006 and 2007 vintages after a reevaluation of its rating criteria(p6).

The Bank of England announced its intention to purchase substantial quantities of government and corporate bonds through its Asset Purchase Facility, after which yields on long-term British gilts fell significantly(p6).

The Swiss National Bank announced that it woudl purchase both dimestic corproate debt and foreign currency to increase liquidity(p6).

In the forecast prepared for the meeting, the staff revised down its outlook for economic activity(p6).

The staff's projections for real GDP in the second half of 2009 and in 2010 were revised down, with real GDP expected to flatten out gradually over the second half of this year and then to expand slowly next year as the stresses in financial markets ease, the effects of fiscal stimulus thank hold, inventory adjustements are worked through,a nd the correction in the housing activity comes to an end. The weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year(p7).

Of particular note was the apparent sharp fall in foreign economic activity, which was having a negative effect on U.S. exports(p7).

Expenditures were being cut substantially for a wide range of captial equipment, and spending on nonresidential structures had recently turned down. Inventory liquidiatino was continuing, but inventory-sales ratios remained elevated as sales slowed(p7).

Some (members) believed that the natural resilience of market forces would become evident later this year(p8).

Some participants also cautioned that, becaus eof the poor functioning of the financial system, capital and labor were not beng allocated to their most productive uses, and this failure threatened to damp the recovery and reduce the potential growth of the economy over the medium term(p8).

To further its long run objectives, the Committee seeks conditions in reserve markets consistent with federal funds tradign in a range from 0 to 1/4 percent(p9).

The Desk is expected to purchase up to $200 billion in housing-related GSE debt by the end of this year. The Desk is expected to purchase at least $500 billion in GSE-guaranteed MBS by the end of the second quarter of this year and is expected to purchase up to $1.25 trillion of these securities by the end of the year. The Committee also directs th eDesk to purchase longer-term Treasury securities during the intermeeting period. Over the next six months, the Desk is expected to purchase up to $300 billion of longer-term Treasury securities(p9).