WASHINGTON (MNI) – The following is an excerpt from the text of the
minutes of the Federal Open Market Committee’s September 21 meeting
published Tuesday. The section below is Participants’ Views on Current
Conditions and the Economic Outlook:

Many participants noted that if economic growth remained too slow
to make satisfactory progress toward reducing the unemployment rate or
if inflation continued to come in below levels consistent with the
FOMC’s dual mandate, it would be appropriate to provide additional
monetary policy accommodation.

In their discussion of the economic situation and outlook, meeting
participants generally agreed that the incoming data indicated that
output and employment were increasing only slowly and at rates well
below those recorded earlier in the year. Although participants
considered it unlikely that the economy would reenter a recession, many
expressed concern that output growth, and the associated progress in
reducing the level of unemployment, could be slow for some time.
Participants noted a number of factors that were restraining growth,
including low levels of household and business confidence, heightened
risk aversion, and the still weak financial conditions of some
households and small firms. A few participants noted that economic
recoveries were often uneven and were typically slow following downturns
triggered by financial crises. A number of participants observed that
the sluggish pace of growth and continued high levels of slack left the
economy exposed to potential negative shocks. Nevertheless, participants
judged the economic recovery to be continuing and generally expected
growth to pick up gradually next year.

Indicators of spending by businesses and households were mixed.
Several participants observed that data on retail sales had been a bit
stronger than expected over the intermeeting period, although business
contacts indicated that shoppers remained very price sensitive. There
were some reports of retailers cautiously boosting inventories ahead of
the holiday season by somewhat more than they did a year ago. Households
were continuing efforts to repair their balance sheets by saving more
and paying down debt. Participants noted that elevated uncertainty about
employment prospects continued to weigh on consumption spending. Many
businesses had built up large reserves of cash, in part by issuing
long-term debt, but were refraining from adding workers or expanding
plants and equipment. A number of business contacts indicated that they
were holding back on hiring and spending plans because of uncertainty
about future fiscal and regulatory policies. However, businesses also
indicated that concerns about actual and anticipated demand were
important factors limiting investment and hiring. Businesses reported
continued strong foreign demand for their products, particularly from
Asia.

Participants noted that the housing sector, including residential
construction and home sales, continued to be very weak. Despite efforts
aimed at mitigation, foreclosures continued to add to the elevated
supply of available homes, putting downward pressure on home prices and
housing construction.

Financial developments were mixed over the intermeeting period.
Banks remained generally cautious and uncertain about the regulatory
outlook, although investors appeared confident that U.S. banks could
meet the new international standards for bank capital and liquidity that
were announced over the intermeeting period. Improving household
financial conditions were contributing to better consumer loan
performance, and credit problems more broadly appeared to have mostly
peaked, although banks continued to report elevated losses on commercial
real estate loans, especially construction and land development loans.
Credit remained readily available for larger corporations with access to
financial markets, and there were some signs that credit conditions had
begun to improve for smaller firms. Asset prices had been relatively
sensitive to incoming economic data over the intermeeting period but
generally ended the period little changed on net. Stresses in European
financial markets remained broadly contained but bore watching going
forward.

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** Market News International Washington Bureau: 202-371-2121 **

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