NEW YORK (Reuters) - Federal Reserve officials slashed their growth forecasts through 2009 and some believed even deeper interest rate cuts may be necessary if growth slows further, minutes of their October meeting released on Wednesday show.
KEY POINTS: * “Even after today’s 50 basis point action, the committee judged that downside risks to growth would remain,” the Fed said. * “Members anticipated that economic data over the upcoming intermeeting period would show significant weakness in economic activity, and some suggested that additional policy easing could well be appropriate at future meetings,” the minutes said. * The U.S. central bank lowered its forecast for 2008 gross domestic product growth to 0 percent to 1.3 percent from its June projection of 1.0 percent to 1.6 percent. The economy could shrink by 0.2 percent in 2009, according to the lower range of the Fed’s central tendencies forecast.
BILL RUTHERFORD, PRESIDENT, RUTHERFORD INVESTMENT MANAGEMENT LLC, PORTLAND, OREGON:
“The economy has been in a terrible situation. It is not getting better. They are throwing a lot of money at it but they haven’t solved the problem. Rate cut certainly should be done. The are doing a lot on the monetary side and they need to do more.
“But the real problem is the housing market. Until that that gets fixed we’re not going to see a bottom and we’re not going to turn around because consumers have lost confidence in the economy and the government. Now you have auto companies lining up for money.”
RYAN DETRICK, SENIOR TECHNICAL STRATEGIST, SCHAEFFER’S INVESTMENT RESEARCH, CINCINNATI:
“Our stance is that the Fed has really lost a lot of credibility, unfortunately, with the recent crisis of the handling of the TARP. Obviously what they said with downside risk to growth, even after their recent cut, it’s just more of the same.
“I am not sure how much honestly they are moving this market. We were lower before the minutes. The bigger scope is just continued very, very poor earnings action and economic data continues to be lower.”
SEBASTIEN GALY, SENIOR CURRENCY STRATEGIST, BNP PARIBAS, NEW YORK:
“The most interesting tidbit is the Fed’s saying that ‘some saw monetary policy easing constrained by lower bound of zero on rates.’ That clearly indicates that they’ve been thinking about quantitative easing. Kohn spoke about it today, too. It’s emerging as a theme, but slowly. So far, only the bond market appears to be pricing it in a bit. The 10-year swap curve has reached new lows. Not every market is pricing it in the same way, though. It hasn’t happened yet with equities and there’s no strong feeling in the currency market. But it’s slowly emerging as a theme.”
DAVID COARD, HEAD OF FIXED-INCOME SALES AND TRADING, THE WILLIAMS CAPITAL GROUP, NEW YORK:
“Both the Fed minutes and the economic forecasts mean that Treasuries are likely to do better, especially in the short end because clearly they’ve left open the door for more easing.”
“They left no question that they see the economy contracting and that means we are in a recession.”
MARKET REACTION: STOCKS: U.S. equity indexes extended their losses. BONDS: Treasury debt prices steady at higher levels. DOLLAR: U.S. dollar falls to session low against yen.