The government reported Oct. 30 that the economy shrank at a 0.3% rate in the third quarter of this year.
The Fed policymakers also expected that "the subsequent pace of recovery would be quite slow" and that "the unemployment rate would increase substantially further," the central bank said.
The committee members lowered their economic growth projections for next year to an annualized rate of -0.2% to 1.1%, down from a range of 2.0% to 2.6%.
The central bank even revealed concern that the sudden disappearance of inflation could be a bad thing, alluding to the potential for a catastrophic episode of broad-based deflation, last experienced in the United States during the Great Depression. Some Fed policymakers expressed support for more aggressive rate cuts, saying they would reduce the odds of such an outcome, the minutes say.
The dark economic outlook is leading many people to save more of their earnings to compensate -- another reason that consumer spending has slowed, said Dean Baker, co-director of the Center for Economic and Policy Research.
"People are scared to death," he said.
It makes sense for consumers to rebuild their savings because most were spending beyond their means for the last several years, Baker said. So if the economy is going to get a boost, he said, it will have to come from government spending.
"I'm hoping Congress passes a big stimulus package," he said. "But even if they do, it will only soften the fall."
Consumers on Wednesday certainly noticed the good news at the gas pump, and were grateful for whatever relief they could get, even though it did little to offset the economy's overall weakness.
Sal Robledo, 42, owns a small business in Upland that installs telecom systems. He has two employees who go along with him on jobs, with everyone squeezed into the relatively tight confines of a 2002 Ford Ranger he bought when gasoline prices started to rise last year. Before, he relied on a much roomier, much thirstier Chevy Astro van.
But even with a smaller vehicle, when gasoline was selling at $4.50 a gallon it was a nightmare trying to eke out a profit while driving as many as 450 miles in a week.
"It was just crazy," Robledo said. "I usually charge a trip fee depending on how far I have to drive, and I raised it from $25 to $40. I couldn't raise it fast enough to keep up. I had to raise it that high just to keep making a little money."
The high fuel prices forced Robledo along with his wife, Victoria, and 16-year-old daughter, Naomi, to retrench in a big way. Most of the family's entertainment -- such as movies and weekend carnivals -- was eliminated. He and his wife also decided not to drive long distances to see Naomi play softball.
"It's bad when you can't watch your daughter play a softball game," Robledo said.
But this week, going to the gas station was almost a pleasant experience. "It cost me $35 to $36 to fill up," Robledo said. "It felt great."
And he's been able to reduce his trip charge substantially, to between $20 and $25.
Robledo and his wife are enjoying nights out again and, barring a rebound in pump prices, are looking forward to attending all of their daughter's games.
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maura.reynolds@latimes.com
ron.white@latimes.com
