Wednesday, January 7, 2009

Fed Fears Long, Deep Recession

The New York Times - WASHINGTON — Policy makers at the Federal Reserve appeared almost stunned by an economy that was sinking faster than they had expected on almost every front in December, so much so that they even toyed with the idea of not announcing an official target for overnight interest rates, according to minutes of the meeting released on Tuesday.

At the meeting on Dec. 15 and 16, Fed policy makers jumped through the looking glass and slashed the benchmark federal funds rate on overnight loans between banks virtually to zero. Vowing to use “all available tools” for stimulating the economy, the Fed then outlined a radical new approach of pumping money into the economy through its own lending programs and through heavy purchases of mortgage-backed securities and possibly longer-term Treasury bonds.

Despite having already created a raft of new lending programs to financial institutions and even corporate borrowers, Fed policy makers as well as the Fed’s staff forecasters began the meeting with sharply reduced forecasts. They all expected a severe economic contraction that was likely to last through at least the first half of 2009.

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