This passage in the minutes qualifies (italics mine):
Several participants said that the degree and pervasiveness of the decline in foreign economic activity was one of the most notable developments since the January meeting. In light of this development, it was widely agreed that exports were not likely to be a source of support for U.S. economic activity in the near term.
Were they thinking in January that the export markets would hold up? When I read this and then looked back at policy these past several years it seems as if the FOMC doesn't quite understand just how interconnected the world is and how Fed policies can set off a domino effect of reactions around the globe -- not always to the good (see the recent run up in oil and food prices).
I have to believe the Committee members know better than this expression of surprise in the minutes indicate. Giving them this poetic license with the language in the minutes, my inclination focuses on what wasn't said -- or at least reported in the minutes (they are not necessarily one and the same).
There was only one mention of the dollar's FX value, and that to only point out dollar appreciation against the yen and how the dollar is doing against the major currencies. Considering the amount of debt being issued and the extent of foreign participation in the U.S. capital markets (China, for one) I would think some mention of the dollar and foreign holdings would be warranted. Perhaps it will be mentioned in the next meeting, which will be post G-20 and the hub-bub regarding China's concern about the value of its dollar holdings.
The minutes also contained this:
Several expressed concern that inflation was likely to persist below desired levels, with a few pointing to the risk of deflation. Even without a continuation of outright price declines, falling expectations of inflation would raise the real rate of interest and thus increase the burden of debt and further restrain the economy.
Those several are absolutely right. The Fed recognizes the obvious danger of deflation and wants positive inflation expectations, not too hot but not too cold either, and they are clearly committed to keeping these expectations warm.
Summing up everything being done to revive the credit markets, the economy, and to keep inflation from dropping below target, and then add in the lack of comment regarding dollar FX and foreign ownership of U.S. Treasury debt, I find it near impossible to come away with any conclusion other than that the dollar will fall and the Fed really isn't particularly concerned (see my 4/2 blog).
The Fed funds futures market is pricing a 50bp funds rate by the end of the year and a 75bp funds rate in spring 2010 and 1.25% by the fall.
Redressing the imbalance in the value of the dollar is necessary, though not necessarily sufficient, to restore economic growth.