Text: FOMC Minutes

Below is the minutes released by the Federal Open Market Committee after its June 24-25 meeting on interest rate policy:

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 Federal Reserve headquarters in Washington, DC.

The information reviewed at the June meeting indicated that economic activity had remained soft in recent months. Manufacturing activity had deteriorated, business investment in equipment appeared to have moved down, and residential construction had continued its steep descent. Labor market conditions had weakened further, and consumer sentiment was at historical lows, but despite these developments, consumer spending appeared resilient. Core consumer price inflation had been stable over recent months, but headline inflation had remained elevated because of further substantial increases in food and energy prices.

Labor demand continued to weaken in April and May. Private payroll employment fell at a slower rate than earlier in the year, but the decline in jobs was again widespread, with the exception of nonbusiness services. As a result, aggregate hours of private production or nonsupervisory workers fell, on average, in April and May. The unemployment rate jumped from 5.0 percent in April to 5.5 percent in May and was now about a percentage point above its level of a year ago. The increase from April to May was accompanied by a rise in labor force participation, especially among young people.

Industrial production contracted in April and May at a slightly faster pace than in the first quarter. Manufacturing output also fell in April and was unchanged in May; over the two months, factory production slowed across a broad range of industries. Production in the high-tech sector continued to expand but at only a modest rate. The factory utilization rate edged down further in April and May to a level below its first-quarter average and was well below its recent high in the third quarter of 2007.

The growth of real consumer spending appeared to have picked up moderately from its sluggish pace in the first quarter. Real outlays on goods other than motor vehicles increased at a robust pace, on average, in April and May. However, retail purchases of motor vehicles fell to a low level. More broadly, households' financial conditions appeared to have weakened in recent months. Real disposable personal income had been rising only slowly since last summer, restrained by the gradual deterioration in labor market conditions and sharp increases in food and energy prices. The ratio of household wealth to income had dropped sharply in the first quarter, reflecting substantial net declines in broad equity prices and further depreciation of house prices. Measures of consumer sentiment fell further in April and May; the May readings from the Reuters/University of Michigan Surveys of Consumers and the Conference Board Consumer Confidence Survey were near their low points reached during the early 1990s.

Activity in the housing sector remained very weak in April and May. Single-family housing starts posted further declines, leaving the pace of construction in this sector down about two-thirds from the peak in early 2006; starts of multifamily homes were a bit below their average over the last 10 years. Although production cuts in the single-family housing sector resulted in continued reductions of inventories of unsold new homes, the slow pace of sales left the ratio of unsold new homes to sales at elevated levels not seen since the early 1980s. Sales of existing homes remained little changed through April at a low level. However, the index of pending sales agreements--an indicator of existing home sales in coming months--jumped in April to its highest reading in six months. Conditions in mortgage credit markets remained tight, particularly for nonprime borrowers and for those seeking nonconforming mortgages.