FOMC Minutes

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Minutes of the Federal Open Market Committee

March 18, 2008

A meeting of the Federal Open Market Committee was

held in the offices of the Board of Governors of the

Federal Reserve System in Washington, D.C., on Tuesday, March 18, 2008 at 8:30 a.m.

PRESENT:

Mr. Bernanke, Chairman

Mr. Geithner, Vice Chairman

Mr. Fisher

Mr. Kohn

Mr. Kroszner

Mr. Mishkin

Ms. Pianalto

Mr. Plosser

Mr. Stern

Mr. Warsh

Messrs. Evans, Lacker, and Lockhart, and Ms.

Yellen, Alternate Members of the Federal

Open Market Committee

Messrs. Hoenig and Rosengren, Presidents of the

Federal Reserve Banks of Kansas City and

Boston, respectively

Mr. Sapenaro, First Vice President, Federal Reserve

Bank of St. Louis

Mr. Madigan, Secretary and Economist

Ms. Danker, Deputy Secretary

Mr. Skidmore, Assistant Secretary

Ms. Smith, Assistant Secretary

Mr. Alvarez, General Counsel

Mr. Ashton, Assistant General Counsel

Mr. Sheets, Economist

Mr. Stockton, Economist

Messrs. Connors, English, and Kamin, Ms. Mester,

Messrs. Rolnick, Rosenblum, Slifman, Sniderman, and Wilcox, Associate Economists

Mr. Dudley, Manager, System Open Market Account

Mr. Struckmeyer, Deputy Staff Director, Office of

Staff Director for Management, Board of

Governors

Mr. Parkinson, Deputy Director, Division of Research and Statistics, Board of Governors

Ms. Bailey, Deputy Director, Division of Banking

Supervision and Regulation, Board of Governors

Mr. Clouse, Deputy Director, Division of Monetary Affairs, Board of Governors

Ms. Liang and Messrs. Reifschneider and Wascher,

Associate Directors, Division of Research and

Statistics, Board of Governors

Mr. Gagnon, Visiting Associate Director, Division

of Monetary Affairs, Board of Governors

Mr. Blanchard, Assistant to the Board, Office of

Board Members, Board of Governors

Mr. Carpenter, Assistant Director, Division of

Monetary Affairs, Board of Governors

Mr. Small, Project Manager, Division of Monetary

Affairs, Board of Governors

Mr. Luecke, Section Chief, Division of Monetary

Affairs, Board of Governors

Ms. Low, Open Market Secretariat Specialist, Division of Monetary Affairs, Board of Governors

Mr. Judd, Executive Vice President, Federal Reserve Bank of San Francisco

Messrs. Altig, Rasche, Sellon, and Sullivan, Senior

Vice Presidents, Federal Reserve Banks of Atlanta, St. Louis, Kansas City, and Chicago, respectively

Mr. Olivei, Vice President, Federal Reserve Bank

of Boston

Mr. Pesenti, Assistant Vice President, Federal Reserve Bank of New York

Mr. Hetzel, Senior Economist, Federal Reserve

Bank of Richmond

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Federal Open Market Committee

The Manager of the System Open Market Account

reported on recent developments in foreign exchange

markets. There were no open market operations in

foreign currencies for the System’s account in the period since the previous meeting. The Manager also

reported on developments in domestic financial markets and on System open market operations in government securities and federal agency obligations during the period since the previous meeting. By unanimous vote, the Committee ratified these transactions.

The information reviewed at the March meeting indicated that economic activity had continued to decelerate in recent months. The contraction in homebuilding

intensified, consumer spending appeared to be weakening, and survey measures of both consumer and business sentiment were at depressed levels. Industrial

production fell in February, and private payroll employment posted a third consecutive monthly decline.

After having increased in recent months through January, both headline and core inflation as measured by

the consumer price index (CPI) dropped noticeably in

February. In early March, however, prices of oil and

other commodities rose sharply.

Labor demand softened markedly in recent months.

The decline in private payroll employment that began

last December steepened through February. Although

employment by firms in the nonbusiness services sector and in state and local governments continued to

rise, declines elsewhere were widespread. Losses were

greatest in the manufacturing, construction, and retail

trade sectors. Aggregate hours of private production or

nonsupervisory workers fell slightly in the first two

months of the year. The unemployment rate edged

down to 4.8 percent in February, but was still up from

the 4.5 percent rate of a year earlier. The labor force

participation rate declined in February.

Industrial production declined in February after edging

up slightly in the previous two months. The output of

utilities dropped back after a weather-related surge in

January, while mining output fell somewhat in the first

two months of the year on average. Manufacturing

production edged down after having flattened out in

January. The motor vehicle and construction-related

industries continued to hold down overall manufacturing output even as high-tech production posted moderate increases. The factory utilization rate edged down

in February to a level noticeably below its recent high

in the third quarter of 2007.

_

Real consumer spending appeared to have stalled in

recent months. Real outlays for nondurable and durable consumer goods, including automobiles, were estimated to have declined, on average, in January and

February. Real disposable personal income was unchanged in the fourth quarter, held down by higher

food and energy prices, and moved up only slightly in

January. Further declines in house prices led to a noticeable decrease in the ratio of household wealth to

disposable income in the fourth quarter. The downturn in equity prices since December further reduced

household wealth in the first quarter. Readings on

consumer sentiment dropped sharply in February from

already low levels, and the Reuters/University of

Michigan survey remained at a depressed level in early

March.

The contraction in residential construction continued

into early 2008. Single-family housing starts fell in both

January and February. After having dropped especially

sharply in December, multifamily housing starts rebounded somewhat in the first two months of the year.

New home sales declined again in January, thereby

pushing inventories of unsold homes to even higher

levels relative to sales. Sales of existing homes held

roughly steady in January, and the index of pending

sales agreements in that month was consistent with flat

sales in February and March. Overall, demand for

housing continued to be restrained by tight financing

conditions for jumbo and nonprime mortgages.

Real spending on equipment and software rose at a

sluggish rate in the fourth quarter. In January, orders

and shipments of nondefense capital goods excluding

aircraft were above their fourth-quarter levels. However, the overall outlook for capital spending in the first

quarter was weak in light of the deterioration in surveys

of business conditions and attitudes and the worsening

situation in markets for business finance. On the heels

of robust gains during most of last year, nominal

spending on nonresidential structures decelerated in

December and posted an outright decline in January.

Although spending in this sector is often volatile, the

recent deceleration was consistent with mounting indications of slowing demand for nonresidential buildings

and tightening credit conditions.

Real investment in nonfarm inventories excluding motor vehicles remained at a steady pace in the fourth

quarter of 2007, but motor vehicle inventories fell

sharply. After declining in November, the ratio of

manufacturing and trade book-value inventories (ex-

Minutes of the Meeting of March 18, 2008

cluding motor vehicles) to sales ticked up in December

and held steady in January, but this ratio remained well

below its average value in 2007.

The U.S. international trade deficit narrowed substantially in December and was about unchanged in January. Exports rose sharply in both months, while imports dipped in December before recovering in January. Increases in exports were broadly based except for

automotive exports, which dropped sharply in December and remained low in January. Imports of services

were up moderately. Oil imports soared, reflecting increases in both prices and volumes. Most other categories of imports dropped in December and January on

net, with especially large declines in imports of automotive and consumer goods.

In the major advanced foreign economies, the rate of

growth of real gross domestic product (GDP) generally

declined in the fourth quarter. The source of the slowdown varied substantially across economies. In the

euro area and in the United Kingdom, output was restrained by a softening in domestic demand. In contrast, Canadian domestic demand continued to increase

at a very strong pace, but because of an offsetting steep

decline in net exports, real GDP rose only modestly.

Japan was the exception among the advanced foreign

economies to the pattern of slower growth; real GDP

there strengthened in the fourth quarter with higher

domestic spending and continued strength in exports.

Japanese exports to the United States, however, declined. Available first-quarter economic indicators for

the advanced foreign economies were mixed, but, on

balance, they pointed to slowing growth. Real activity

also appeared to have slowed a bit in emerging markets,

though it continued to advance at a fairly strong rate.

In emerging Asia, the pace of real GDP growth picked

up in the fourth quarter in China and South Korea, but

it softened in most other countries. The rate of increase in economic activity slowed in Brazil, Mexico,

and several other countries in Latin America in the

fourth quarter, but remained generally strong.

In the United States, the headline CPI continued to rise

rapidly in January but was flat in February. For those

two months on average, the rate of headline inflation

was down significantly from its elevated level in the

fourth quarter of 2007, as retail energy prices stopped

rising and core inflation moderated a bit; these two

factors more than offset an acceleration of food prices.

However, the increase in world petroleum prices in

early March pointed to a renewed burst of energy price

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inflation in the near term. Available information, including producer prices for February, suggested that

prices of core personal consumption expenditures

(PCE) moved up a bit more slowly than the core CPI

in January and somewhat faster than the core CPI in

February. Household survey measures of expectations

for year-ahead inflation jumped in March to their highest levels in about two years; in contrast, survey measures of longer-term inflation expectations were unchanged or up slightly. Average hourly earnings increased at a somewhat slower rate in January and February than they had in November and December.

Over the twelve months that ended in February, this

wage measure rose a bit more slowly than in the previous twelve months.

At its January 30 meeting, the FOMC lowered its target

for the federal funds rate 50 basis points, to 3 percent.

In addition, the Board of Governors approved a decrease of 50 basis points in the discount rate, to

3½ percent. The Committee’s statement noted that

financial markets remained under considerable stress

and that credit had tightened further for some businesses and households. Moreover, incoming information indicated a deepening of the housing contraction

as well as some softening in labor markets. The Committee expected inflation to moderate in coming quarters but said that it would be necessary to continue to

monitor inflation developments carefully. The Committee indicated that its action, combined with the policy actions taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, the Committee noted that

downside risks to growth remained. The Committee

stated that it would continue to assess the effects of

financial and other developments on economic prospects and would act in a timely manner as needed to

address these risks.

Over the intermeeting period, conditions in some

short-term funding markets worsened. Spreads in interbank funding markets widened, as did spreads on

lower-rated commercial paper.

Obtaining credit

through repurchase agreements backed by agency and

private-label mortgage-backed securities (MBS) also

became more difficult amid reports of larger “haircuts”

being applied by lenders and news that some market

participants missed margin calls on positions as a result.

Concerns over the health of financial guarantors caused

dislocations in the markets for municipal securities, and

the ratios of municipal bond yields to those on comparable-maturity Treasuries climbed to historically high

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Federal Open Market Committee

levels. In longer-term corporate markets, yields on investment-grade and speculative-grade corporate bonds

rose, pushing their spreads relative to Treasuries to the

highest levels since 2002 or even earlier in some cases.

Nonetheless, gross bond issuance in January and February remained solid for investment-grade firms.

Commercial bank credit decelerated in January and

February, damped by a reduction in merger and acquisition activity, weak business spending, fewer previously committed loan deals coming onto banks’ books,

and slower residential mortgage lending. Commercial

real estate lending at banks, however, continued to advance briskly in January and February, while the rise in

consumer loans was moderate. Over the intermeeting

period, spreads on conforming and jumbo residential

mortgages over comparable-maturity Treasury securities jumped, and credit default swap premiums for the

government-sponsored enterprises increased to record

highs. Issuance of conforming MBS continued to be

strong, while credit availability for jumbo and nonprime mortgage borrowers remained tight. Broad

stock price indexes fell further over the intermeeting

period on negative economic news as well as concerns

about the outlook for many financial institutions.

Similar stresses were again evident in the financial markets of major foreign economies. However, economic

news in these economies was generally less downbeat

than in the United States, leading to expectations of

greater monetary easing in the United States than elsewhere. The trade-weighted foreign exchange value of

the dollar against major currencies declined notably.

M2 increased strongly in January and February, boosted

primarily by heightened demands for the relative safety

and liquidity of money market mutual funds. The decline in opportunity costs associated with monetary

policy easing also supported rapid growth of liquid deposits.

In the two weeks prior to the March meeting, the Federal Reserve announced several measures to bolster

liquidity and promote orderly functioning in financial

markets. On March 7, the Federal Reserve announced

that it would initiate a series of term repurchase transactions that would facilitate funding of primary dealers’

assets and that the volume of lending through the

Term Auction Facility (TAF) would be increased. On

March 11, the Federal Reserve, in coordination with

other central banks, announced the expansion and extension of the reciprocal currency arrangements that

_

were established in December as well as the creation of

a Term Securities Lending Facility (TSLF) under which

the Federal Reserve would lend Treasury securities to

primary dealers for longer terms than in the existing

program and based on a broader range of collateral.

On March 14, the Federal Reserve Board approved the

temporary financing arrangement announced that

morning by JPMorgan Chase & Co. and The Bear

Stearns Companies Inc. On March 16, the Federal Reserve announced the creation of a lending facility to

improve the ability of primary dealers to provide financing to participants in securitization markets. In

addition, the Federal Reserve lowered the primary

credit rate, or discount rate, 25 basis points to 3.25 percent, and extended the maximum maturity of primary

credit loans to ninety days from thirty days. It also approved the longer-term financing arrangement announced that evening by JPMorgan Chase and Bear

Stearns in conjunction with the acquisition of Bear

Stearns by JPMorgan Chase.

Over the intermeeting period, the expected path of

monetary policy over the next year as measured by

money market futures rates moved down sharply,

largely in response to softer-than-expected economic

data releases and deteriorating financial market conditions. The Committee’s action at the January 30 meeting had been viewed by market participants as the most

likely outcome, but near-term futures rates declined a

few basis points as investors had placed some probability on a smaller policy move. Neither the subsequent

release of the minutes of the meeting nor the March 7

Federal Reserve announcements elicited significant

market reaction. The March 11 TSLF announcement

was followed by a step-up in money market futures

rates as liquidity concerns eased somewhat and market

participants evidently concluded that less policy easing

would be needed than previously anticipated. However, liquidity concerns reemerged subsequently,

prompting a further drop in money market futures

rates. Consistent with the shift in the economic outlook, the revision in policy expectations, and the reduction in the target federal funds rate, yields on short- and

medium-term nominal Treasury coupon securities declined substantially after the January 30 FOMC meeting. However, yields on long-term Treasuries fell much

less than those on shorter-term instruments, and the

yield curve steepened significantly. Inflation compensation—the difference between yields on nominal

Treasury securities and those on inflation-indexed issues—was little changed on balance for shorter-term

issues, but longer-term inflation compensation rose.

Minutes of the Meeting of March 18, 2008

In the forecast prepared for this meeting, the staff substantially revised down its projection for the pace of

real GDP throughout 2008. Although the available

data on spending and production early in the first quarter were not materially weaker than the staff’s expectations, many other indicators of real activity were more

negative. Payroll employment declined substantially; oil

prices surged again, crimping real household incomes;

and measures of consumer and business sentiment deteriorated sharply. Moreover, house prices fell by more

than anticipated, and conditions in a broad range of

debt markets became more restrictive. The staff projection showed a contraction of real GDP in the first

half of 2008 followed by a slow rise in the second half.

The recently enacted fiscal stimulus package was expected to boost real GDP in the second half of 2008,

but that effect was projected to unwind in 2009. The

forecast showed real GDP rising at a rate somewhat

above the growth rate of its potential in 2009, in response to the impetus from cumulative monetary policy easing, continued strength in net exports, a lessening drag from high oil prices, and a relaxation of financial market strains. Even with this pickup in growth in

2009, resource utilization was anticipated to follow a

lower trajectory than in the previous forecast.

The forecast for core PCE price inflation over the first

half of 2008 was raised in response to elevated readings

in recent months. In addition, the forecast for headline

PCE price inflation incorporated a much higher rate of

increase for energy prices for the first half of the year;

as a result, headline PCE price inflation was expected

to substantially exceed core PCE price inflation in

2008. By 2009, the forecasts for both the headline and

core PCE price indexes showed inflation receding from

its 2008 level, in line with the previous forecasts.

In their discussion of the economic situation and outlook, FOMC participants noted that prospects for both

economic activity and near-term inflation had deteriorated in view of increasingly fragile financial markets

and tighter credit conditions, rising prices for oil and

other commodities, and the deepening contraction in

the housing sector. Home prices had declined more

steeply than anticipated, and the weakening housing

market, combined with a softening in labor markets,

appeared to be weighing on consumer sentiment.

Businesses also were seen as becoming more pessimistic and cautious, despite a strong foreign demand for

U.S. goods. Strains in financial markets had increased,

portending a possible further tightening in the availability of credit to households and businesses. Against this

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backdrop, many participants thought some contraction

in economic activity in the first half of 2008 now appeared likely. The economy was expected to begin to

recover in the second half of the year, supported by

recent monetary policy easing and fiscal stimulus. Accommodative monetary policy and a recovery in financial markets along with an abatement of the downdraft

in housing activity were expected to help foster a further pickup in economic growth in 2009. However,

considerable uncertainty surrounded this forecast, and

some participants expressed concern that falling house

prices and stresses in financial markets could lead to a

more severe and protracted downturn in activity than

currently anticipated. Participants noted that recent

readings on inflation had generally been elevated, that

energy prices had risen sharply, and that some indicators of inflation expectations had risen. Most participants anticipated that a flattening of oil and other

commodity prices and easing pressures on resources

would contribute to some moderation in inflation pressures. Nonetheless, uncertainties about the outlook for

inflation had risen.

Stresses in financial markets had intensified noticeably

since the January meeting. Several meeting participants

noted that price discovery for mortgage-related financial assets had become increasingly difficult in an environment of declining house prices and considerable

uncertainty as to the ultimate extent of such declines.

With the magnitude and distribution of losses on mortgage assets quite unclear and many financial institutions

experiencing significant balance sheet pressures, many

lenders pulled back from risk taking—notably by increasing collateral margins on secured lending—and

liquidity diminished in a number of financial markets.

In these circumstances, many market participants were

experiencing greater difficulties obtaining funding, and

meeting participants regarded financial markets as unusually fragile. The new liquidity facilities recently introduced by the Federal Reserve would probably be

helpful in bolstering market liquidity and promoting

orderly market functioning, but even so, the ongoing

strains were likely to raise the price and reduce the

availability of credit to businesses and households.

Evidence that an adverse feedback loop was under way,

in which a restriction in credit availability prompts a

deterioration in the economic outlook that, in turn,

spurs additional tightening in credit conditions, was

discussed. Several participants noted that the problems

of declining asset values, credit losses, and strained financial market conditions could be quite persistent,

restraining credit availability and thus economic activity

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Federal Open Market Committee

for a time and having the potential subsequently to delay and damp economic recovery.

Participants noted that the contraction in the housing

sector had deepened and that considerable uncertainty

surrounded the outlook for housing. Although some

stabilization in housing markets was likely needed to

help underpin an economic recovery in coming quarters, there was little indication that that process had yet

begun. Elevated rates of foreclosures and large inventories of unsold property were likely to depress home

prices for some time. Lower home prices would eventually buoy home buying, but in the meantime the

prospect of continued price declines could lead potential homebuyers to defer purchases for a time, further

damping housing activity and adding to downward

pressure on home values. Participants noted that the

trajectory of house prices was a major source of uncertainty in their economic outlook.

Recent data and anecdotal reports from business contacts suggested that consumer spending was decelerating noticeably, though it apparently had not yet actually

declined substantially. Participants noted that private

payroll employment had fallen in February for the third

consecutive month, and suggested that increasing concerns among workers about prospects for employment

and income likely were holding down consumer outlays. Rising energy prices were also damping growth in

real incomes. One participant reported that lenders

were restricting draws on home equity lines, and the

tightening of credit availability more generally was

probably starting to constrain consumer spending.

Also, the continued fall in home prices and declines in

equity prices were weighing on household wealth, with

a depressing effect on spending.

The outlook for business spending had also dimmed

since the time of the January meeting. Anecdotal reports from many regions of the country pointed to a

retrenchment in capital spending in response to increased pessimism about economic prospects and

heightened caution on the part of business managers.

The tightening supply of credit was seen as exacerbating this softness in business outlays and contributing

particularly to a pullback from nonresidential construction projects. However, investment spending on agricultural equipment was reported to be quite strong,

spurred by soaring crop prices. Reports on inventories

were mixed but, overall, inventories appeared to be

roughly in balance with desired levels.

_

In discussing the external sector of the economy, some

participants indicated that net exports remained a notable source of support for the economy. Growth in

exports was being supported by strength in foreign

economies as well as declines in the foreign exchange

value of the dollar. However, some of the recent increase in net exports resulted from weaker imports,

which reflected softer domestic spending. Some participants saw somewhat slower global economic growth

as a possible consequence of the problems in financial

markets and weakness in the United States and noted

that such a development could potentially limit the

support that exports would provide to the U.S. economy going forward.

The recent information on inflation was seen as disappointing. With the exception of the February report on

consumer prices, readings on inflation had generally

been elevated. Agricultural prices were rising at a substantial clip, partly in response to strong global demand, lean supplies, and a lower foreign exchange

value of the dollar. Other commodity prices also were

climbing rapidly, and crude oil prices were near record

levels. Several participants stated that business contacts

had emphasized that their input costs were rising and

that they were seeking to pass on higher costs to their

customers. Some participants, however, expressed the

view that emerging economic slack would limit the extent to which firms could pass on their higher costs and

could serve to damp inflation more generally. Moreover, available data and anecdotal reports suggested

that unit labor costs were rising only modestly, and

thus were seen as unlikely to exert significant upward

pressure on prices. Weaker growth, both in the United

States and abroad, should also contribute to a flattening

of oil and other commodity prices over time, which

would also reduce price pressures and the threat of rising inflation expectations. On balance, most participants still expected inflation to moderate later this year

and in 2009. However, the recent depreciation of the

dollar could boost import prices and thus contribute to

higher inflation. Moreover, with both core and headline inflation having been somewhat elevated, participants expressed some concern that inflation expectations might become less firmly anchored. Indeed,

some indicators suggested that inflation expectations

had edged higher of late. In view of these considerations, significant uncertainty attended the near-term

outlook for price pressures. On balance, however, participants emphasized that appropriate monetary policy,

combined with effective communication of the Com-

Minutes of the Meeting of March 18, 2008

mittee’s commitment to price stability, would foster

price stability over time.

In the Committee’s discussion of monetary policy for

the intermeeting period, most members judged that a

substantial easing in the stance of monetary policy was

warranted at this meeting. The outlook for economic

activity had weakened considerably since the January

meeting, and members viewed the downside risks to

economic growth as having increased. Indeed, some

believed that a prolonged and severe economic downturn could not be ruled out given the further restriction

of credit availability and ongoing weakness in the housing market. Members recognized that monetary policy

alone could not address fully the underlying problems

in the housing market and in financial markets, but they

noted that, through a range of channels, lower shortterm real interest rates should help buoy economic activity and ameliorate strains in these markets. Even

with a substantial easing at this meeting, most members

saw overall inflation as likely to moderate in coming

quarters, reflecting a projected leveling-out of energy

and commodity prices and an easing of pressures on

resource utilization. However, inflation pressures had

apparently risen even as the outlook for growth had

weakened. With the uncertainties in the outlook for

both economic activity and inflation elevated, members

noted that appropriately calibrating the stance of policy

was difficult, partly because some time would be required to assess the effects of the substantial easing of

policy to date. All in all, members judged that a 75 basis point easing of policy at this meeting was appropriate to address the combination of risks of slowing economic growth, inflationary pressures, and financial

market disruptions.

The Committee agreed that the statement to be released after the meeting should indicate that economic

activity had weakened further, reflecting slower growth

in consumer spending and softening in the labor market, that financial markets remained under considerable

stress, and that the tightening of credit conditions and

the deepening of the housing market contraction were

likely to weigh on economic growth over the next few

quarters. Given recent developments, the Committee

concurred that the statement should note that inflation

had been elevated and that some indicators of inflation

expectations had risen, but agreed that the announcement should also reiterate that inflation was expected

to moderate in coming quarters. As in recent statements, the Committee emphasized that it would continue to monitor inflation developments carefully. The

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Federal Reserve had implemented a number of measures to foster market liquidity in recent weeks, and

members thought that the statement should note that

policy actions taken today and earlier, including those

liquidity measures, would promote moderate growth

over time. In light of the uncertainties regarding the

housing sector and financial market developments,

however, the Committee repeated its recent indications

that downside risks to growth remained. The Committee agreed on the need to act in a timely manner to

promote its dual objectives of sustainable economic

growth and price stability.

At the conclusion of the discussion, the Committee

voted to authorize and direct the Federal Reserve Bank

of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance

with the following domestic policy directive:

“The Federal Open Market Committee seeks

monetary and financial conditions that will foster price stability and promote sustainable

growth in output. To further its long-run objectives, the Committee in the immediate future

seeks conditions in reserve markets consistent

with reducing the federal funds rate to an average of around 2¼ percent.”

The vote encompassed approval of the statement below to be released at 2:15 p.m.:

“The Federal Open Market Committee decided

today to lower its target for the federal funds

rate 75 basis points to 2¼ percent.

Recent information indicates that the outlook

for economic activity has weakened further.

Growth in consumer spending has slowed and

labor markets have softened. Financial markets

remain under considerable stress, and the tightening of credit conditions and the deepening of

the housing contraction are likely to weigh on

economic growth over the next few quarters.

Inflation has been elevated, and some indicators

of inflation expectations have risen. The Committee expects inflation to moderate in coming

quarters, reflecting a projected leveling-out of

energy and other commodity prices and an easing of pressures on resource utilization. Still,

uncertainty about the inflation outlook has increased. It will be necessary to continue to

monitor inflation developments carefully.

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Federal Open Market Committee

Today’s policy action, combined with those

taken earlier, including measures to foster market liquidity, should help to promote moderate

growth over time and to mitigate the risks to

economic activity. However, downside risks to

growth remain. The Committee will act in a

timely manner as needed to promote sustainable

economic growth and price stability.”

Votes for this action: Messrs. Bernanke, Geithner,

Kohn, Kroszner, and Mishkin, Ms. Pianalto, Messrs.

Stern and Warsh.

Votes against this action: Messrs. Fisher and

Plosser.

Messrs. Fisher and Plosser dissented because, in light

of heightened inflation risks, they favored easing policy

less aggressively. Incoming data suggested a weaker

near-term outlook for economic growth, but the

Committee’s earlier policy moves had already reduced

the target federal funds rate by 225 basis points to address risks to growth, and the full effect of those rate

cuts had yet to be felt. While financial markets remained under stress, the Federal Reserve had already

taken separate, significant actions to address liquidity

issues in markets. In fact, Mr. Fisher felt that focusing

on measures targeted at relieving liquidity strains would

improve economic prospects more quickly and lastingly

than would further reductions in the federal funds rate

at this point; he believed that alleviating these strains

would increase the efficacy of the earlier rate cuts.

Both Messrs. Fisher and Plosser were concerned that

inflation expectations could potentially become unhinged should the Committee continue to lower the

funds rate in the current environment. They pointed to

measures of inflation and indicators of inflation expectations that had risen, and Mr. Fisher stressed the international influences on U.S. inflation rates. Mr.

Plosser noted that the Committee could not afford to

wait until there was clear evidence that inflation expectations were no longer anchored, as by then it would be

too late to prevent a further increase in inflation pressures.

It was agreed that the next meeting of the Committee

would be held on Tuesday-Wednesday, April 29-30,

2008.

The meeting adjourned at 1:15 p.m.

_

Notation Vote

By notation vote completed on February 19, 2008, the

Committee unanimously approved the minutes of the

FOMC meeting held on January 29-30, 2008.

Conference Call

On March 10, 2008, the Committee met to review financial market developments and to consider proposals

aimed at supporting the liquidity and orderly functioning of those markets. In light of the sharp further deterioration of some key money and credit markets, and

against the backdrop of a weaker economic outlook,

meeting participants discussed the potential usefulness

and risks of instituting a Term Securities Lending Facility, under which primary dealers would be able to borrow Treasury securities for a term of approximately one

month against any collateral eligible for open market

operations and the highest-quality private mortgage

securities. Most participants concluded that offering

this facility was an appropriate step that could help alleviate pressures in the financing markets for Treasury

and some mortgage-backed securities. By improving

conditions in funding markets, the measure was expected to help restore the functioning of financial markets more generally and thereby promote the effective

conduct of monetary policy as well as macroeconomic

stability. During the discussion, participants expressed

concerns that establishment of the facility could be

viewed as setting a precedent and thus raise expectations of other actions in the future, and they also noted

some uncertainty about how effective the facility would

be in practice. On balance, the Committee decided that

the facility could prove useful in preventing an escalation of an unhealthy dynamic that was developing in

money and credit markets, in which liquidity and collateral concerns were spreading. In addition, the Committee agreed to expand and extend the existing reciprocal currency agreements with the European Central

Bank and the Swiss National Bank.

The Committee voted to approve the following resolutions:

Term Securities Lending Facility.

In addition to the current authorization granted to the

Federal Reserve Bank of New York to engage in overnight securities lending transactions, and in order to

ensure the effective conduct of open market operations, the Federal Open Market Committee authorizes

the Federal Reserve Bank of New York to lend up to

$200 billion of U.S. Government securities held in the

System Open Market Account to primary dealers for a

Minutes of the Meeting of March 18, 2008

term that does not exceed 35 days at rates that shall be

determined by competitive bidding.

These lending transactions may be against pledges of

U.S. Government securities, other assets that the Reserve Bank is specifically authorized to buy and sell

under section 14 of the Federal Reserve Act (including

federal agency residential-mortgage-backed securities

(MBS)), and non-agency AAA-rated residential MBS.

The Federal Reserve Bank of New York shall set a

minimum lending fee consistent with the objectives of

the program and apply reasonable limitations on the

total amount of a specific issue that may be auctioned

and on the amount of securities that each dealer may

borrow.

The Federal Reserve Bank of New York may reject

bids which could facilitate a dealer’s ability to control a

single issue as determined solely by the Federal Reserve

Bank of New York.

This authority shall expire at such time as determined

by the Federal Open Market Committee or the Board

of Governors.

Secretary’s note: By notation vote completed

on March 20, 2008, the Committee unanimously approved a resolution that added nonagency AAA-rated commercial-mortgagebacked securities to the list of collateral acceptable in connection with the Term Securities

Lending Facility.

Swap Authorizations.

The Federal Open Market Committee directs the Federal Reserve Bank of New York to increase the amount

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available from the System Open Market Account under

the existing reciprocal currency arrangement (“swap”

arrangement) with the European Central Bank to an

amount not to exceed $30 billion. Within that aggregate limit, draws of up to $15 billion are hereby authorized. The current swap arrangement shall be extended

until September 30, 2008, unless further extended by

the Federal Open Market Committee.

The Federal Open Market Committee directs the Federal Reserve Bank of New York to increase the amount

available from the System Open Market Account under

the existing reciprocal currency arrangement (“swap”

arrangement) with the Swiss National Bank to an

amount not to exceed $6 billion. Draws are authorized

up to the full amount of the swap. The current swap

arrangement shall be extended until September 30,

2008, unless further extended by the Federal Open

Market Committee.

Votes for these actions: Messrs. Bernanke, Geithner,

Fisher, Kohn, and Kroszner, Ms. Pianalto, Messrs.

Plosser and Warsh, and Ms. Yellen.

Votes against these actions: None.

Absent and not voting: Mr. Mishkin.

Ms. Yellen voted as alternate member.

_____________________________

Brian F. Madigan

Secretary