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A Peek Into the Fed's Thinking On Policy Shifts

Minutes of the Fed's Federal Open Market Committee meeting could be revealing.
Minutes of the Fed's Federal Open Market Committee meeting could be revealing. (J. Scott Applewhite - AP)
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By Neil Irwin
Washington Post Staff Writer
Monday, April 6, 2009

Three weeks ago, the Federal Reserve surprised many with yet another bold effort to prop up the economy using unconventional policies, this time saying it would try to lower interest rates further by buying nearly $1.2 trillion in mortgage-related securities and long-term government bonds.

Now, we find out what was going on behind the scenes.

The Fed will release minutes of its March Federal Open Market Committee meeting tomorrow, which should answer some important questions. For example, after first raising the possibility in December, the Fed backed away from buying long-term Treasury bonds in January. It changed course again in March, saying it would buy $300 billion in such bonds to pump more money into the economy, a practice known as quantitative easing.

The minutes could shed light on why it changed direction, despite fears among some on the committee that the bond purchases would make it appear that the Fed was printing money to fund large U.S. government deficits.

Also shedding light on the central bank this week, Fed Governor Kevin M. Warsh is scheduled to give a speech this afternoon, and take audience questions, about financial market and economic developments. Warsh is one of Fed Chairman Ben S. Bernanke's closest collaborators in the response to the crisis. He doesn't give many speeches, so this should be a rare chance to hear his latest thinking.

It is a slow week for economic data, the highlight being international trade data to be released Thursday, which is expected to show a slightly widening U.S. trade deficit. Economists are looking for the nation to have imported about $36.5 billion more in goods and services than it exported in February, reflecting a rapidly slowing world economy that has meant less demand for American goods abroad. The deficit was $36 billion in January.

NEIL IRWIN'S MUST-READS

Among his current picks: Economist Nouriel Roubini explains why he sees a dim and distant glimmer in the economic data. For more, go http://to washingtonpost.com/economywatch.


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