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Fed lowers economic expectations for 2011

From foreclosure to food shortages, the economic downturn set in motion by the financial crisis of 2008 is having a broad and deeply-felt global impact.

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It was these diminished expectations for growth that led Fed officials this month to announce plans to buy $600 billion in Treasury bonds in a bid to drive down long-term interest rates and pump up growth.

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"Though the economic recovery was continuing," Fed policymakers considered progress to be "disappointingly slow," according to minutes of the meeting released Tuesday. "Moreover, members generally thought that progress was likely to remain slow."

Since the decision, the criticism directed at the Fed has been loud as foreign finance ministers, Republican members of Congress, and conservative economists and media personalities bashed the move.

But most Fed officials expected the results of bond purchases "to help promote a somewhat stronger recovery in output and employment while also helping return inflation, over time, to levels consistent with the Committee's mandate." Some also thought the action would offer insurance against a further drop in inflation or against the "small probability" of persistent deflation.

But the document also leaves little doubt that several Fed officials remain uneasy with the action. Some anticipated that they would have only a "limited" effect on the pace of recovery, arguing the action should only be taken if the odds of deflation "increased materially."

And several "noted concern" that the action "could put unwanted downward pressure on the dollar's value in foreign exchange markets" or "an undesirably large increase inflation."

Besides the Nov. 2-3 policy meeting, there was a previously undisclosed Oct. 15 videoconference among the Fed officials where they discussed whether they should move closer to making explicit their view of what inflation rate would constitute "price stability," part of the Fed's official mandate from Congress. The officials think a 1.6 to 2 percent rate of inflation is optimal in the longer run.

There was discussion on this videoconference of Chairman Ben S. Bernanke holding "occasional press briefings" to offer the public more detailed information on the Fed's outlook and policy decisions.

In the Nov. 2-3 meeting, Fed officials discussed their approach for communicating with the public and agreed to a review of the central bank's guidelines headed by Vice Chairman Janet Yellen. In recent months, many Fed leaders have become more outspoken in speeches and interviews about their preferred direction for policy, which has sometimes caused confusion in the marketplace.


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