In conjunction with the January 2008 FOMC meeting, the members of the Board of Governors and the presidents of the Federal Reserve Banks, all of whom participate in the deliberations of the FOMC, provided projections for economic growth, unemployment, and inflation in 2008, 2009, and 2010. Projections were based on information available through the conclusion of the January meeting, on each participant's assumptions regarding a range of factors likely to affect economic outcomes, and on his or her assessment of appropriate monetary policy. "Appropriate monetary policy" is defined as the future policy that, based on current information, is deemed most likely to foster outcomes for economic activity and inflation that best satisfy the participant's interpretation of the Federal Reserve's dual objectives of maximum employment and price stability.
The central tendency of participants' projections for real GDP growth in 2008, at 1.3 to 2.0 percent, was considerably lower than the central tendency of the projections provided in conjunction with the October FOMC meeting, which was 1.8 to 2.5 percent. These downward revisions to the 2008 outlook stemmed from a number of factors, including a further intensification of the housing market correction, tighter credit conditions amid increased concerns about credit quality and ongoing turmoil in financial markets, and higher oil prices. However, some participants noted that a fiscal stimulus package would likely provide a temporary boost to domestic demand in the second half of this year. Beyond 2008, a number of factors were projected to buoy economic growth, including a gradual turnaround in housing markets, lower interest rates associated with the substantial easing of monetary policy to date and appropriate adjustments to policy going forward, and an anticipated reduction in financial market strains. Real GDP was expected to accelerate somewhat in 2009 and by 2010 to expand at or a little above participants' estimates of the rate of trend growth.
Minutes of the Federal Open Market Committee
The Committee agreed that the statement to be released after the meeting should indicate that financial markets remained under considerable stress, that credit had tightened further for some businesses and households, and that recent information pointed to a deepening of the housing contraction as well as to some softening in labor markets. The Committee again viewed it as appropriate to indicate that it expected inflation to moderate in coming quarters but also to emphasize that it would be necessary to monitor inflation developments carefully. The action taken at the meeting, combined with the cumulative policy easing already in place, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, members concurred that downside risks to growth remained, and that the Committee would continue to assess the effects of financial and other developments on economic prospects and would act in a timely manner as needed to address those risks.
"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve markets consistent with reducing the federal funds rate to an average of around 3 percent."
