Page last updated at 00:40 GMT, Thursday, 9 April 2009 01:40 UK

Fed minutes reveal gloomy outlook

US Federal Reserve chairman Ben Bernanke
Fed Chairman Ben Bernanke believes the US will start to recover in 2009.

Notes from the last meeting of US Federal Reserve policy makers show just how downbeat they had become on the state of the US economy.

It was this pessimism that led them to agree to spend more than $1tn (£680bn) to revive its fortunes.

"Most participants viewed the downside risks as predominating in the near term," the minutes said.

But the committee did expect a recovery to start in 2009, despite unemployment rising sharply into next year.

'Job losses'

Projections for economic activity in 2009 and 2010 were also revised down.

The minutes from the Federal Open Market Committee (FOMC) on 17-18 March of this year listed a catalogue of concerns but also stressed the members' determination to "employ all available tools to promote economic recovery and to preserve price stability".

They revealed how the US economy had deteriorated more than policymakers had expected since the turn of the year.

"Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending," a statement from the FOMC said.

"Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment.

"US exports have slumped as a number of major trading partners have also fallen into recession," it continued.

However, despite the depth of the recession, the committee said that it expected recovery to begin in 2009.

'Steep rises'

GDP is "expected to flatten out gradually over the second half of this year and then to expand slowly next year as the stresses of the financial markets ease, the effects of fiscal stimulus take hold, inventory adjustments are worked through and the correction in housing activity comes to an end", it said.

The prognosis for unemployment was more downbeat, however.

The jobless rate, which currently stands at 8.5%, "would rise more steeply into early next year before flattening out at a high level over the rest of the year", the notes said.

As a result of the pessimism surrounding the short-term outlook for the US economy, all members of the committee agreed to spend an additional $750bn of mortgage-backed securities and a further $300bn to buy long-term government bonds.

This policy of so-called quantitative easing, where the central bank spends money in order to stimulate economic growth, has also been adopted by the Bank of England in the UK.



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