Wholesale inventories drop by most in 17 years

Frustrated with slow progress in thawing the credit markets, the Federal Reserve last month reversed course and decided to pump hundreds of billions more dollars into the economy, according to meeting minutes released Wednesday.

The minutes shed light on the decision three weeks ago by the Fed’s key interest rate-setting body to buy $300 billion in long-term Treasury bonds, after backing away from the proposal in December. Some members of the committee opposed the move over fears that the Fed would be perceived as printing money to fund large U.S. government deficits.

At the March meeting, however, the grim state of the economy overcame those concerns.

“In the discussion of the economic situation and outlook, nearly all meeting participants said that conditions had deteriorated relative to their expectations,” the minutes read.

Since the Fed’s previous Open Market Committee meeting, in January, unemployment had continued to rise rapidly. Consumer and business spending remained weak. Stock prices continued to fall. And despite sharp cuts in production, businesses were still weighed down by unsold inventory.

The committee members also concluded that the Fed’s efforts at that point had failed to get credit flowing again. “The credit markets still were not working,” the minutes said.

Inflation had edged up only slightly, and the Fed governors and economists who attended the March meeting “saw little chance of a pickup in inflation over the near term,” alleviating worries that injecting more money into the economy might spark inflation.

The group, uncertain of the effect of any one strategy, settled on several. The Fed chose to purchase the long-term Treasury bonds, a practice known as quantitative easing, as well as to buy more mortgage-backed securities and agency debt.

Both actions almost immediately drove down interest rates on home mortgages and other consumer loans to record lows.