(RTTNews) - The forecast from members of the Federal Open Market Committee deteriorated significantly in the period between their October and December meetings, the minutes from the FOMC’s December meeting revealed Tuesday. The policy-making arm of the Federal Reserve is expecting economic weakness to extend throughout 2009, a bleak outlook that prompted them to slash the federal funds rate to record low levels.

“Real GDP was projected to decline for 2009 as a whole and to rise at a pace slightly above the rate of potential growth in 2010,” the Fed noted in the minutes.

There will be a “moderate recovery” in 2010, the central bank added.

“Rising unemployment, the declines in stock market wealth, low levels of consumer sentiment, weakened household balance sheets, and restrictive credit conditions were likely to continue to hinder household spending over the near term” the minutes read.

In addition, homebuilding was expected to decline, and business spending was also on the downturn.

“All told, real GDP was expected to fall much more sharply in the first half of 2009 than previously anticipated, before slowly recovering over the remainder of the year as the stimulus from monetary and assumed fiscal policy actions gained traction and the turmoil in the financial system began to recede,” the minutes read.

In addition, some FOMC members saw that the financial market crisis combined with a loss of consumer wealth and the global nature of the recession led to the “the distinct possibility of a prolonged contraction.” However, that worst case scenario was not judged as the most likely outcome, the minutes read.

Deflation is also a concern, as participants warned that inflation could “drop for a time below rates they viewed as most consistent over time with the Federal Reserve’s dual mandate for maximum employment and price stability.”

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Posted in Categories: Economy, Releases, USA.

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