Fed Sees Recession Lasting Through First Half of 2009

You have to take this news out of the Fed with a ton of salt, since they didn't see the recession or the housing crisis coming, despite the fact that they caused it by their money supply manipulations.

That said, according to minutes of the closed-door meeting of the Federal Open Market Committee on Oct. 28 and 29. The Fed governors and Fed bank presidents "generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009, and agreed that the downside risks to growth had increased."

For a group that hasn't done too well on the forecast front, they do get into some detailed forecasts. The minutes, for example, also report that "Participants agreed that inflation was likely to diminish materially in coming quarters."

Given that the Fed is now printing money again, and that it will only take a lessening of the desire to hold cash balances that will re-ignite inflation, the Fed's expectations that inflation is likely to diminish materially is a very bold statement, and has a good chance of proving very wrong by mid-2009.