WASHINGTON (MNI) – The following is an excerpt from the Minutes of
the November 2-3 Federal Open Market Committee containing updated
quarterly projections and the outlook, published Tuesday:

Participants continued to expect a modest pickup in the pace of the
recovery over the next couple of years. The central tendency of their
projections for output growth in 2011 was 3.0 to 3.6 percent, followed
by central tendencies of 3.6 to 4.5 percent in 2012 and 3.5 to 4.6
percent in 2013. Participants noted that factors such as previously
deferred spending on consumer durables and business equipment and
software, stabilization in residential investment, accommodative
conditions in financial markets, and some easing in credit conditions
would likely provide impetus to economic growth going forward. However,
participants cited several forces that were likely to weigh on the pace
of the economic expansion over the next few years, including the ongoing
poor performance of the commercial real estate sector, the uneven pace
of the recovery in housing markets, the potential effects of the home
mortgage documentation problems that had recently surfaced, the
restraint in government spending resulting from the strained fiscal
conditions of many states and municipalities, and credit conditions at
banks that were likely to ease fairly slowly. Participants anticipated
that, in the absence of further shocks, the economy would converge over
time to a longer-run rate of real GDP growth of 2.5 to 2.8 percent,
unchanged from June. Participants expected that conditions in labor
markets would improve gradually beginning next year. The central
tendency of their projections of the average unemployment rate in the
fourth quarter of this year was 9.5 to 9.7 percent. Uncertainty on the
part of employers about the sustainability of the recovery was generally
anticipated to ebb over the forecast period, and participants expected
that hiring would gradually pick up and unemployment would decline
slowly. The central tendency of their unemployment rate projections for
the end of the forecast period in 2013 was 6.9 to 7.4 percent. On the
whole, the projections suggest a more gradual decline in unemployment
over the next few years than had been expected in June, consistent with
the participants assessments of somewhat weaker growth prospects.
Participants noted that the more gradual recovery was reflected in
improvements in the labor market to date that had been slower to
materialize than previously anticipated. Some participants attributed a
portion of the upward revision in their projections of unemployment over
the next two years to longer-lived structural adjustments in labor
markets, and they raised their estimates of the unemployment rate that
would prevail in the longer run accordingly. As a result, participants
longer-run projections of unemployment exhibited a central tendency of
5.0 to 6.0 percent, substantially wider than the central tendency of 5.0
to 5.3 percent reported in June.

Participants’ inflation projections edged up since June but
continued to indicate that inflation was expected to remain subdued over
the next several years. Participants noted that the high degree of slack
in resource markets would help keep inflation relatively low over the
forecast horizon. At the same time, appropriate monetary policy,
combined with well-anchored inflation expectations, was seen as likely
to result in a modest level of inflation, avoiding either an undesirable
increase or a further decrease in inflation. The central tendency of
participants projections for personal consumption expenditures (PCE)
inflation was 1.2 to 1.4 percent in 2010, 1.1 to 1.7 percent in 2011,
1.1 to 1.8 percent in 2012, and 1.2 to 2.0 percent in 2013. Increases in
energy and other commodity prices were expected to boost headline PCE
inflation over the forecast period, with core inflation likely to run at
a somewhat lower pace. Most participants projections of inflation over
the next several years did not exceed the rate of longer-run inflation
that they individually considered most consistent with the Federal
Reserves dual mandate for maximum employment and stable prices.
Participants projections of this mandateconsistent rate of inflation
exhibited a central tendency of 1.6 to 2.0 percent, little changed from
June.

Uncertainty and Risks

As they did in June, most participants attached a higher degree of
uncertainty to their projections of output growth and unemployment over
the forecast horizon than is historically typical.1 While a majority of
participants judged the risks to output growth as broadly balanced, many
participants viewed the risks to their forecast of output growth as
weighted to the downside, the risks to their forecast of unemployment as
tilted to the upside, or both. Some of these participants noted that it
would be more difficult than usual to address future negative shocks to
the real economy, should they materialize, because the Federal Reserve
had already moved nominal short-term interest rates close to zero, and
because they saw the likelihood of further fiscal stimulus as being
quite limited. In addition, some of these participants noted that the
anticipated recovery of the housing market might take longer than
expected. Regarding inflation, a few participants judged that the
uncertainty surrounding their projections was broadly similar to
historical norms, but most continued to attach an unusually high degree
of uncertainty to these projections. Most participants continued to
assess the risks to their inflation forecasts as broadly balanced,
although some judged that downside risks predominated and a couple
judged that upside risks predominated. Participants citing downside
risks noted concerns about the degree to which lingering resource slack
in the economy was putting downward pressure on inflation, or about the
possible effects that an extended period of low readings on actual
inflation might have in reducing inflation expectations. Those who
indicated upside risks to inflation generally pointed to concerns
relating to the unusual size of the Federal Reserves balance sheet,
which, if left in place for too long, might eventually begin to erode
the stability of longer-term inflation expectations.

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

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