The Feds Debate the ‘Long and Short’ of Recession

March's FOMC minutes were released yesterday...and while they were interesting, what was said in the last meeting wasn't too terribly surprising.

The minutes show that Fed policymakers were worried that a "deep" recession, rather than a "shallow" one, would permeate the U.S. economy, which spurred them to cut the key interest rate by three-quarters of a percentage point.

The Fed was mostly united in their decision to cut the key lending rate, except for two dissenters, Philadelphia Fed President Charles Plosser and Dallas Fed chief Richard Fisher.

While the majority saw the rate cut as the right decision since "further restriction of credit availability and ongoing weakness in the housing market made a severe downturn a strong possibility," Plosser and Fisher thought otherwise. The hawks were more comfortable with smaller cuts because of the concern that an inflationary flare-up would occur.

MSNBC reports: "On the one hand, the Fed has been urgently moving to prevent the trio of economic woes - housing, credit and financial - from plunging the country into deep recession. On the other hand, with soaring energy prices and high food costs, policymakers realize they can't afford to let inflation out of control, either."

The financial media and experts are placing bets that the Fed will chose to cut rates again next month, as the economy has yet to reach its final bottom.

"There's no question the U.S. economy is one of the weakest in the world,'' Stephen Koukoulas, a London-based global strategist at TD Securities, a unit of Toronto-Dominion Bank, Canada's third-largest bank, said in an interview with Bloomberg Television. "We do need the policy makers, the Fed and even the administration to come in and kick-start the economy. It's probably going to get worse before it gets better."

Kate Incontrera
The Daily Reckoning Australia

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