Minutes from the December FOMC Meeting
The minutes from the December Federal Open Market Committee meeting were released yesterday. Reports on the fourth quarter were discussed. Consumption growth and business revenue showed decelerated readings for September and October. Shipments of capital goods fell as well as industrial production in October. Inflation remained moderate, although energy prices spiked nearly $100 per barrel.
Minutes indicated that there were doubts among the Fed that growth will be as high as projected in October. Slow growth was already anticipated, but it seems growth will be less than moderate and very sluggish for the year. The possibility for more rate cuts in the coming meeting is growing stronger. There is also a debate as to whether or not Term Auction Facilities will be continued after the next scheduled two this month.
Consumer spending fell lower than anticipated, which according to the minutes, is most likely due to the housing correction. The housing slump is “deeper and more prolonged†than anticipated.
As you know, this meeting resulted in the rate reduction to 4 ¼ percent.
Overall, the economic outlook was less positive than at the October meeting. Recession remains a looming shadow behind the FOMC, and they are doing everything to avoid it.
Informed predictions suggest that we will not experience a full recession. Positive factors such as export demand and the expanding job market might offset the slowed consumer spending related to the housing correction. Growth may not come to a complete stop due to these factors, but since there are so many negative points, including the increase in commodity costs, growth will continue to slow down considerably. Every so often the scale tips to one side or the other, but for now we have enough on both ends to keep the economy from sinking completely.
While the economy might only sluggishly expand by about 1%, it is unlikely that the economy will slump dramatically. Some might consider this to be a mild recession, but not one that is borderline depression.
Additional rate cuts are expected by many economists. The rate may end up as low as 3.75%. The FOMC can only lower the rates just but so much due to inflation concerns, but rates will probably be cut lower than originally anticipated. If we do face a recession, it will not be a heavy one. If we don’t, the economy still won’t be ‘booming’ necessarily.
