U.S. Fed committee finds economic setbacks

WASHINGTON, D.C.—Participants of the 21 September joint meeting of the Federal Open Market Committee and the Federal Reserve board of governors concluded the pace of the economic expansion slowed during the past few months, but it is unlikely the economy will re-enter a recession.  Based on the slower pace, the group lowered its projection for the increase in real economic activity during the second half of 2010. They also slightly reduced the forecast of growth next year, but continue to anticipate a moderate strengthening of the expansion in 2011 and a further pickup in economic growth in 2012. Minutes of the meeting were released 12 October.

In the intermeeting period, banks continued to report elevated losses on commercial real-estate loans, especially construction and land-development loans. Credit remained readily available for larger corporations with access to financial markets, and there were signs that credit conditions began to improve for smaller companies.  Survey indicators of business conditions softened further in August, according to participants. Incoming construction data indicated business investment in nonresidential structures decreased during the second quarter, but at a slower pace than over the preceding year.

Commercial real-estate markets continued to face difficult financial conditions, but there were some signs the sector might be stabilizing. The prices of commercial properties edged up during the first half of the year and the volume of commercial real-estate sales rose again in August.  Meeting attendees said a few small commercial mortgage-backed securities deals were issued over the intermeeting period and were reportedly well-received by investors, consistent with an easing of conditions and renewed interest in the CMBS market since the beginning of the year. But the volume of CMBS issuance in 2010 remains very low compared to levels seen before the onset of the financial crisis and total commercial mortgage debt continued to contract amid further increases in delinquency rates on commercial mortgages.

Other indicators discussed at the meeting:

• Overall inflation is projected to remain subdued
• Consumer confidence remained muted
• Households more pessimistic
• Bank loans continued to contract
• Commercial and industrial loans rose slightly in July
• Commercial real-estate loans contracted further in August

The next joint meeting is scheduled for 2 and 3 November.

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• Click here for The Mortgage Market in a Time of Low Interest Rates and Economic Distress.