"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Tuesday, January 4, 2011

FOMC Minutes. Nothing To - Wait, Is That A QE3?

The Federal Open Market Committee minutes are out for December. Pull up the statement or the actual text of the minutes, and join me in breathless anticipation as we see what the Masters of the Economy have said. In their opinion:
  1. Economic activity is strengthening, and the labor market is deteriorating less swiftly.
  2. Household spending is increasing at a modest rate, but is held back by the weak labor market (see 1 above), "modest" income growth, lower housing wealth, and tight credit.
  3. Business spending is picking up, but investment in structures is still down and employers remain reluctant to add to payrolls (see 1 above). Inventory and sales are beginning to match up, though.
  4. Bank lending continues to constrict, but financial market conditions remain supportive of economic growth.
  5. The pace of economic recovery is likely to be moderate for a time.
  6. Inflation is likely to be subdued for some time.
  7. The target range for the federal funds rate will remain at 0.00% to 0.25%.
  8. The Federal Reserve will begin purchasing $1.25 trillion in agency mortgage-backed securities and $175 billion of agency debt. It is anticipated that all of these transactions will be executed by the end of Q1 2011.
  9. The Federal Reserve will be shutting down a bunch of funding and liquidity programs, and will be allowing the liquidity swap arrangements between itself and other (international) Central Banks to expire on 2/1.
  10. Thomas Hoenig voted against the policy action, arguing that economic and financial conditions have changed enough to no longer justify the extraordinarily low federal funds rate.
A lot of administrative stuff there. Items 7 and 10 are no surprise. Item 9 is a mild surprise (it does seem to indicate a belief that the worst is over). Item 8, though...
Item 8.
The purchase of $1.25 trillion in agency mortgage-backed securities, and $175 billion of agency debt. QE3, anyone?

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