April FOMC Minutes: Fed To Raise Rates Before Selling Assets, Q1 Economic Weakness Blamed On Weather, Inflation "Transitory"

Tyler Durden's picture

Key highlights: "Participants viewed the weakness in first-quarter economic growth as likely to be largely transitory, influenced by unusually severe weather, increases in energy and other commodity prices, and lower-than-expected defense spending. As a result, they saw  economic growth picking up later this year....Recent increases in consumer food and energy prices, together with the small uptick in core consumer price inflation, led the staff to raise its near-term projection for consumer price inflation. However, inflation was expected to recede over the medium term, as food and energy prices were anticipated to decelerate...Nearly all participants indicated that the first step toward normalization should be ceasing to reinvest payments of principal on agency securities and, simultaneously or soon after, ceasing to reinvest principal payments on Treasury securities....A few members remained uncertain about the benefits of the asset purchase program but, with the program nearly completed, judged that making changes to the program at this time was not appropriate...The participants who favored earlier sales also generally indicated a preference for relatively rapid sales, with some suggesting that agency securities in the SOMA be reduced to zero over as little as one or two years. Such an approach was viewed as allowing for a faster return to a normal policy environment, potentially reducing any upside risks to inflation stemming from outsized reserve balances, and more quickly eliminating any effects of SOMA holdings of agency securities on the allocation of credit."

Stone McCarthy's Take Away:

Key Takeaways:

  1. The FOMC made no decision regarding the exact combination of timing and procedures to exit the current extremely easy stance of monetary policy.
  2. The Committee made distinctions between the stance of policy and normalizing the conduct of policy -- how it implemented the removal of accommodation.
  3. The first step in easing would be passive, i.e. ending the reinvestment of maturing securities and principal prepayments as a "modest step" towards tightening.
  4. The second step in easing would be active and raise the fed funds rate target, and that the majority of the Committee favor this approach over selling assets.

On the whole, we read the April 26-27 FOMC meeting minutes as a communication from the Committee regarding its intentions toward and preparedness for an exit from the current extremely easy stance of monetary policy and huge balance sheet. The minutes said that no decisions have as yet been reached, and that further discussion will take place.
Nonetheless, the Committee provided a much clearer picture of the options they have in the exit process, and how conditions could influence the decision making process.

The timing of the exit is still some distance away, but the extensive and detailed discussion in the minutes suggests that the Committee does see conditions are such that the end is now in sight. Normalization of both the stances of policy -- from the enormous size of the balance sheet and near-zero fed funds rate target -- will happen at "the appropriate time." We think that the Committee has increasing evidence of a sustained economic recovery and a less subdued outlook for inflation. If the labor market continues to mend as it has inthe last few months, it seems probable that the FOMC will finally alter its communications and signal the end of the "extended period."


Full minutes:
Fomc Minutes April

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bigdumbnugly's picture

Participants viewed the weakness in first-quarter economic growth as likely to be largely transitory, influenced by unusually severe weather, increases in energy and other commodity prices, and lower-than-expected defense spending. As a result, they saw  economic growth picking up later this year.


well, spring is here, they've smacked down commodity prices with all they've got, and it appears more military actions against whoever are in the offing...


TheTmfreak's picture

It was probably the weather that gave Strauss-Kahn HIV too i'm guessin'. Seems to me that the weather is causin' all sorts of problems these days...

ABG LINE's picture

And probably the "chemtrails" over NYC.


101 years and counting's picture

and, they'll blame japan and high fuel prices for the weakness in Q2....which, of course, is all transitory.

someone should tell the bankers that their freedom is transitory.


DutchZeroPrinter's picture

I believe them when they say weak growth is transitory. Next there won't be growth, it will be a non-transitory collapse.

Gubbmint Cheese's picture

growth expected next quarter... no wait.. next quarter.. no.. wait.. next quarter..

next quarter we promise..


TheTmfreak's picture

I was thinking the same thing. When are they going to start being pessimistic with any of their damn expectations? I guess I don't want to see what happens when that happens.... (QE zillion)

oogs66's picture

every quarter they underestimate inflation and overestimate growth but no one cares!

Missiondweller's picture

I remember CNBC pounding the table that "green shoots" in the economy were here (back in 2009)!

legal eagle's picture

Yes, blame it on reduced defense spending!  LMFAO

TheTmfreak's picture

Makes absolutely no fucking sense. They're speaking gibberish at this point.

Hugh G Rection's picture

Defense Spending has been reduced, military spending is now on offense.


Why should I believe anything the FOMC says???

Keri at Bankster Report's picture

Exactly.  And other poster said "every quarter they underestimate inflation and overestimate growth but no one cares!"  They are ALWAYS wrong, and no one cares!

When has the Fed been right?

It is a pretty sweet job: imagine a gig where you could be constantly wrong, costing your employer trillions, and running the company into the ground, and in return you get another appointment, more authority, daily praise and heralding of your scholarly expertise and erudition, and a license to write long documents of gibberish.  

BillyTheBlade's picture

This can't be good for commodities.....or the economy.

firstdivision's picture

Lots of people about to be caught on the wrong side of the commodity trades this summer...guess who will make out like bandits on it though

Id fight Gandhi's picture

Commodities will collapse with stocks.I have no doubt in this.

Metals will fall too, but the dying dollar with save them.

SpeakerFTD's picture

Bernanke's world:


Good news -   "I did it"

Bad News  - "Transitory"

oogs66's picture

maybe he was an MD at an investment bank since that is their motto too

firstdivision's picture

"However, inflation was expected to recede over the medium term, as food and energy prices were anticipated to decelerate"

How about those decelerating commodity prices today, Ben?

Whatta's picture

Is his definition of deceleration the same as mine? When I decelerate my truck, I go less fast, but am still going in the same direction. Sooo, food and energy are still going to rise and rise and rise, just not doubling every few months?

Stagflation is still what that sounds like to me.

NOTW777's picture

is the lying transitory?

Id fight Gandhi's picture

Who junked you over that? We know they lie. We all talk about it daily here. Were like a bunch of old ladies in a sewing circle with gossip.

Cleanclog's picture

But it's transparent lying, so that's okay, right?

ZIRP until we want to sell assets.  That's the rule.

pazmaker's picture

some on here have personal junkers...I call them secret admirers.. they junk one no matter what one says.

fuu's picture

They junk you because they love you.


“Although most participants continued to see the risks to their outlooks for economic growth as being broadly balanced, a number now judged those risks to be tilted to the downside.”

StychoKiller's picture

Women only get restraining orders to prove how much they love you...:>D

slaughterer's picture

Any hints of the form QE3 will take in the minutes?  I cannot find them at first glance. 

firstdivision's picture

It is written in invisible ink, that will only reveal itself if you wipe your ass with it. 

TruthInSunshine's picture

No matter what they say, ding dong, QE in even a semi-recognizable form, is dead.

The bell tolls for QEx.

ZIRP for as long as Bernanke can take the heat - which may only be a matter of months, at this point.

I do wish Jim Rickards would get to the task of modeling how much more in treasuries reinvestment of interest income and principal from maturing MBS and other paper would net in terms of buying power for the Fed, because I think he's well off the mark with what he casually threw out months ago.

Bay of Pigs's picture

So you're saying the FED will do absolutely nothing as everything in sight collapses and burns to the ground? That is remarkable considering what they have done so far. That means total financial and economic annihilation on that call Mr. Sunshine.

TruthInSunshine's picture

First, you are presuming a bit much by saying "as everything in sight collapses and burns to the ground," no?

That sounds EXACTLY like something that Bernanke, Paulson and Geithner all would have told Congress would happen had TARP-TALF not been passed immediately, no?

Did I say that will happen? I don't even know what you mean by that. Are you talking literally? Give me some scale.

Second, I didn't say the Fed would do "nothing."What I did say, in a manner, is that Bernanke is pretty much out of ammo, and will keep ZIRP or near ZIRP applied, until the negative feedback loop is too powerful. When will that be? I don't know, but it will happen.

If stoppage of QE equals, to quote your exact words, "total financial and economic annihilation," then the continuation of ZIRP is not going to heal that which ails us (it's a catch 22 type predicament).

Bay of Pigs's picture

Fair enough. Maybe a bit over the top on my part. I agree with you that ultimately there will be a Reckoning Day. I just assume the FED (and Congress) will kick the can down the road as far as they possibly can. To me, it means more QE, not less. Trillions more.

StychoKiller's picture

What the Fed is trying to prevent:  http://larouchepac.com/node/11319

Physics and Mathematics WILL win in the end! :>(

trav7777's picture

a lot of people who missed out shorting in 08 and want to make money off of that or else missed out on the 09-11 runup and are jealous.

The Fed has a print button in everyone's office now, lots of swaps and other mechanisms by which they will introduce credit or currency if the system locks up.  The CBs ARE the interbank lending market now.  If they actually back out, their own paper will implode.

Because the money supply is debt and need be repaid, ALL dollars in existence (save a few based on gold) will be vaporized, still leaving a massive interest repayment on the former money supply which cannot be paid.

In the absence of FRNs, some other form of money or transactional currency will manifest itself.  We already have seen this in the form of barter coupons and scrip in various communities.  Precious FRNs *lose* their ability to serve as money.  In such a situation, FRNs only have worth to stave off insolvency and takeover by bankers.

Racer's picture

'sub-prime is well contained' type of minutes

legal eagle's picture

My guess is we are close, maybe a week away, from a low in PMs for the year.

slow_roast's picture

guess?  great, not enough of those floating around are there?

slaughterer's picture
05-18 14:08: Fed says most on FOMC said QE3 unlikely without big change in outlook Feed this text into the scanners of about 2,000 HFT algos and see where it directs the market.
slow_roast's picture

Now the lemmings are buying before wandering off the cliff.  QE3 not coming for at least a quarter.  Deflating the commodity sector isn't so difficult as most will find out in the next few months.

slaughterer's picture

C'mon market, let's have a symbolic sell-off pissy fit.   The Bernanke did not come with your QE3 porridge today.

dracos_ghost's picture

Yeah, I'm surprised Jim Cramer isn't banging the table screaming "They know nothing,NOTHING!!! Without QE3 hedge fund douchebags won't make their bonuses and buy another private island."

Jack Mehoff's picture

No Press Conference?

Keri at Bankster Report's picture

Aha! Good point.  Every time he speaks on camera, it is like a B-12 shot for commodites and PM's.

So, no---no press conference.

Lets Hang Parliament's picture
"Fed To Raise Rates Before Selling Assets"

That's it then 0.5% forever!

Dick Darlington's picture
05-18 14:10: Markets are yet to find direction post the Fed minutes, which showed that the Fed started to debate policy normalisation But it's good that "markets" rose 1% in advance of the Bernank propaganda pages. Just in case.