FOMC Minutes 09/18/07
While we were out... The FOMC minutes echoed the latest economic reports, in advance...
"Moderating economic activity, residential investment weakened further, even before the recent disruptions in mortgage markets.
Residential construction and manufacturing posted noticeable declines in jobs, manufacturing output declined, held down by a decrease in the production of motor vehicles and parts.
Household wealth likely was providing a diminishing impetus to the pace of spending...
reflecting recent declines in stock market wealth and an apparent further deceleration in house prices.
The housing sector remained exceptionally weak.
Most forward-looking indicators of housing demand, including an index of pending home sales, pointed to a further deterioration in sales in the near term.
If declines in house prices were to damp consumption, that could feed back on employment and income, exerting additional restraint on the demand for housing.
Book-value data suggested that inventory accumulation stepped down noticeably. Food prices continued their string of sizable increases.
Rates on asset-backed commercial paper and on low-rated unsecured commercial paper soared, and some issuers...
particularly asset-backed commercial paper programs with investments in subprime mortgages, found it difficult to roll over maturing paper.
These developments led several programs to draw on backup lines, exercise options to extend the maturity of outstanding paper, or even default.
As a result, asset-backed commercial paper outstanding contracted substantially.
Some banks funded leveraged loans that they had intended to syndicate to institutional investors and perhaps because some firms substituted bank credit for commercial paper.
Given existing commitments to customers and the increased resistance of investors to purchasing some securitized products...
banks might need to take a large volume of assets onto their balance sheets over coming weeks, including leveraged loans, asset-backed commercial paper, and some types of mortgages.
Inflation risks could be heightened if the dollar were to continue to depreciate significantly.
Members saw a risk that tightening credit conditions and an intensifying housing correction would lead to significant broader weakness in output and employment."
"Moderating economic activity, residential investment weakened further, even before the recent disruptions in mortgage markets.
Residential construction and manufacturing posted noticeable declines in jobs, manufacturing output declined, held down by a decrease in the production of motor vehicles and parts.
Household wealth likely was providing a diminishing impetus to the pace of spending...
reflecting recent declines in stock market wealth and an apparent further deceleration in house prices.
The housing sector remained exceptionally weak.
Most forward-looking indicators of housing demand, including an index of pending home sales, pointed to a further deterioration in sales in the near term.
If declines in house prices were to damp consumption, that could feed back on employment and income, exerting additional restraint on the demand for housing.
Book-value data suggested that inventory accumulation stepped down noticeably. Food prices continued their string of sizable increases.
Rates on asset-backed commercial paper and on low-rated unsecured commercial paper soared, and some issuers...
particularly asset-backed commercial paper programs with investments in subprime mortgages, found it difficult to roll over maturing paper.
These developments led several programs to draw on backup lines, exercise options to extend the maturity of outstanding paper, or even default.
As a result, asset-backed commercial paper outstanding contracted substantially.
Some banks funded leveraged loans that they had intended to syndicate to institutional investors and perhaps because some firms substituted bank credit for commercial paper.
Given existing commitments to customers and the increased resistance of investors to purchasing some securitized products...
banks might need to take a large volume of assets onto their balance sheets over coming weeks, including leveraged loans, asset-backed commercial paper, and some types of mortgages.
Inflation risks could be heightened if the dollar were to continue to depreciate significantly.
Members saw a risk that tightening credit conditions and an intensifying housing correction would lead to significant broader weakness in output and employment."
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