FOMC Minutes: Bright Outlook, Wary Eye

FOMC members raised their 2010 projections for 2010 GDP growth and showed some disagreement regarding asset sale strategies, according to minutes from the April 27-28 meeting.
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WASHINGTON (TheStreet -- Members of the Federal Open Market Committee slightly raised their projections for 2010 real gross domestic product growth as recent reads on consumer activity, business spending and labor markets continue to show moderate improvements, according to minutes from the Federal Open Market Committee's April 27-28 meeting. FOMC members now expect real GDP growth of between 3.2% and 3.7%, up from January's projected range of 2.8% to 3.5%.

The minutes noted that participants expect economic recovery to continue -- albeit at a slow pace -- which would mean only modest improvements in the unemployment rate this year.

"In light of stable longer-term inflation expectations and the likely continuation of substantial resource slack, policymakers anticipated that both overall and core inflation would remain subdued through 2012, with measured inflation somewhat below rates that policymakers considered to be consistent over the longer run with the Federal Reserve's dual mandate," the minutes said.

The latest inflation data, released Wednesday morning, showed that

consumer prices unexpectedly dipped in April, by 0.1%, on lower energy prices. April's core level, which excludes volatile food and energy costs, remained flat.

There was some disagreement among members regarding asset sale strategies with most participants favoring deferring asset sales until well after the first rate increase to ensure a mature recovery. No definitive decisions regarding the Committee's long-term strategy regarding asset sales were made at the meeting.

The minutes also referenced initial weakness observed in global markets related to Europe's sovereign debt crisis.

"Until the intensification of the Greek crisis near the end of the intermeeting period, equity indexes were higher in nearly all countries, and emerging market risk spreads had generally declined. These moves appeared to reflect growing confidence that the global recovery is gaining momentum," the minutes read, adding, "However, sovereign debt spreads in Greece, Portugal and other peripheral European countries widened in the days leading up to the April FOMC meeting, as investor anxiety about the fiscal situation in those countries increased."

Lawrence Creatura, vice president and portfolio manager at Federated Clover Investment Advisors said the minutes show some concern about how European weakness will play out on Wall Street and Main Street.

"They hinted they're concerned that storm clouds in Europe will eventually cross the Atlantic in both the impact on global demand and in the form of market difficulties," Creatura said.

"Those concerns are likely even greater today than at the time of the meeting," he added.

-- Written by Melinda Peer in New York