The Federal Open Market Committee (the Fed) released their minutes from January’s meeting this past Tuesday. They revealed that the improving economic data had left them more confident that the recovery was “on a firmer footing” and “would be sustained and would gradually strengthen over the coming quarters.” As a result, “the downside risks to forecasts of both economic growth and inflation, as well as, the odds of a period of deflation had diminished.”
The Fed now expects GDP to expand by 3.4% to 3.9% this year, compared with November’s projection of between 3.0% and 3.6%. Even though the outlook for economic growth is improving, Fed officials are still forecasting that the unemployment rate will decline only gradually and that core inflation will remain muted for the next couple of years.
Given their outlook, we don’t anticipate that the Fed will halt its plan to buy a total of $600 billion of Treasury securities by mid-year (a.k.a QE2).