WASHINGTON (MNI) – The following is an excerpt of the text of the
statement released Wednesday by the Federal Open Market Committee after
its two-day monetary policy meeting June 22 – June 23:

Participants’ Views of Current Conditions and the Economic Outlook:

In conjunction with this FOMC meeting, all meeting participantsthe
five members of the Board of Governors and the presidents of the 12
Federal Reserve Banksprovided projections of economic growth, the
unemployment rate, and consumer price inflation for each year from 2010
through 2012 and over a longer horizon. Longer-run projections represent
each participant’s assessment of the rate to which each variable would
be expected to converge over time under appro-priate monetary policy and
in the absence of further shocks. Participants’ forecasts through 2012
and over the longer run are described in the Summary of Economic
Projections, which is attached as an addendum to these minutes.

In their discussion of the economic situation and outlook, meeting
participants generally saw the incoming data and information received
from business contacts as consistent with a continued, moderate recovery
in economic activity. Participants noted that the labor market was
improving gradually, household spending was increasing, and business
spending on equipment and software had risen significantly. With private
final demand having strengthened, inventory adjustments and fiscal
stimulus were no longer the main factors supporting economic expansion.
In light of stable inflation expectations and incoming data indicating
low rates of inflation, policymakers continued to anticipate that both
overall and core inflation would remain subdued through 2012. However,
financial markets were generally seen as recently having become less
supportive of economic growth, largely reflecting international
spillovers from European fiscal strains. In part as a result of the
change in financial conditions, most participants revised down slightly
their outlook for economic growth, and about one-half of the
participants judged the balance of risks to growth as having moved to
the downside. Most participants continued to see the risks to inflation
as balanced. A number of participants expressed the view that, over the
next several years, both employment and inflation would likely be below
levels they consider to be consistent with their dual mandate, but they
anticipated that, with appropriate monetary policy, both would rise over
time to levels consistent with the Federal Reserve’s objectives.

Financial markets had become somewhat less supportive of economic
growth since the April meeting, with the developments in Europe cited as
a leading cause of greater global financial market tensions. Risk
spreads for many corporate borrowers had widened noticeably, equity
prices had fallen appreciably, and the dollar had risen in value against
a broad basket of other currencies. Participants saw these changes as
likely to weigh to some degree on household and business spending over
coming quarters. Participants also noted ongoing difficulties in
financing commercial real estate. Nonetheless, reports suggested that
more-creditworthy business borrowers were still able to obtain funding
in the open markets on fairly attractive terms, and a couple of
participants noted that credit from the banking sector, which had been
contracting for some time, was showing some tentative signs of
stabilizing. Moreover, several participants observed that the decline in
yields on Treasury securities resulting from the global flight to
quality was positive for the domestic economy; in particular, the
associated decline in mortgage rates was seen as potentially helpful in
supporting the housing sector.

Supporting the view of a continued recovery, incoming data and
anecdotal reports pointed to strength in a number of business sectors,
particularly manufacturing and transportation. Policymakers noted that
firms’ investment in equipment and software had advanced rapidly of
late, and they anticipated that such spending would continue to rise,
though perhaps at a somewhat slower pace. Business contacts suggested
that investment spending had been supported by the replacement and
upgrading of existing capital, making up for some spending that had been
postponed in the downturn, and this component of investment demand was
seen as unlikely to remain robust. In addition, inventory accumulation,
which had been a significant contributor to recent gains in production,
appeared likely to provide less impetus to growth in coming quarters.
Participants also noted that several uncertainties, including those
related to legislative changes and to developments in global financial
markets, were generating a heightened level of caution that could lead
some firms to delay hiring and planned investment outlays.

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

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