Fed Anticipates Economy Would Shrink, Minutes Indicate

Federal Reserve officials anticipated that the economy would shrink in the first half of the year, with some concerned about "a prolonged and severe economic downturn."

"Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely," the Fed said in minutes of the March 18 Federal Open Market Committee meeting released in Washington yesterday.

Policy makers also found little sign that housing markets have reached a bottom, the minutes showed. Traders increased bets that the Fed will lower its benchmark interest rate half a point when policy makers meet April 29–30, futures prices show.

"Some believed that a prolonged and severe economic downturn could not be ruled out," the Fed minutes said, referring to FOMC meeting participants. The minutes encompass a period when Chairman Bernanke invoked rarely used authority to provide emergency financing for investment banks and rescued Bear Stearns Cos. from bankruptcy.