"Persistent weakness" in the housing market and the downside risk of further price declines is one of the major factors cited by the Federal Reserve's monetary policy committee for the slowdown in the pace of the economic recovery in recent months.

The slowdown also reflects the "ongoing efforts by some households to reduce debt burdens, the recent sluggish growth of income and consumption, and the fiscal contraction at all levels of government," according to the minutes of the Federal Open Market Committee's (FOMC) meeting of June 21-22.

FOMC members even acknowledged that "uncertainty" regarding the economic outlook and future of tax and regulatory policies is having an effect on the "willingness of firms to hire and invest."

As a result of the recent slowdown, the committee revised downward its projections for economic growth in 2011. In April, committee members expected economic growth to range from 3.1% to 3.3% but at the June meeting, the consensus ranged from 2.7% to 2.9%.

The U.S. unemployment rate rose to 9.2% in June and the FOMC is projecting a decline to only 8.6% to 8.9% by yearend.

Members see the "pace of economic expansion picking up over the coming quarters and the unemployment rate resuming its gradual decline…" according to the June minutes.

FOMC members also discussed plans for selling off the Fed's huge portfolio of Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities at the meeting. Once the FOMC actually raises the Fed Funds rate (which is not expected any time soon), the Fed will start talking to market participants about the timing and pace of the MBS sales.

Once sales begin, the Fed wants to sell its entire $908.9 billion agency MBS portfolio over three to five years. "The committee is prepared to make adjustments to its exit strategy if necessary in light of economic and financial developments," the FOMC minutes say.

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