Fed predicts a slow recovery

WASHINGTON, Jan. 7 (UPI) -- The U.S. Federal Reserve said rising unemployment and weak consumer confidence would slow an economic recovery through 2009.

The minutes of the central bank's mid-December Open Market meeting revealed policymakers' grim economic outlook for the year, CNN reported Wednesday.

The bank predicted unemployment will rise "significantly" through the year. Falling returns on stocks and tighter credit would also plague the economy this year, the Fed said.

"I think that the Fed is really very scared right now -- like everybody else -- and they want to pull out all the stops," Standard & Poor's Chief Economist David Wyss said.

As the economy slows, some committee members expressed fear deflation could contribute to the downward spiral.

Deflation -- a dynamic of falling prices -- causes consumers to halt spending, as customers prefer to wait until the items they want get cheaper.

In the minutes, bank officials said they would continue with the plan to buy $600 billion in mortgage-backed securities to spur activity in the housing market.