FOMC Minutes Show Many Members Believe Rates Should Rise Sooner

Tyler Durden's picture

These are the minutes from when the Fed toned down deflation fears and raised concerns over labor slack, and expectations going in were for a slightly more hawkish tone from the minutes (and perhaps commentary on financial stability - bubbles - and exit strategies). This is what we got:


Sounds pretty hawkish to us...

Pre-FOMC Minutes: S&P Futs 1982.5, 10Y 2.4175%, Gold $1294 , USDJPY 103.40, Oil $95.40

The key section from the minutes:

With respect to monetary policy over the medium run, participants generally agreed that labor market conditions and inflation had moved closer to the Committee’s longer-run objectives in recent months, and most anticipated that progress toward those goals would continue. Moreover, many participants noted that if convergence toward the Committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated. Indeed, some participants viewed the actual and expected progress  toward the Committee’s goals as sufficient to call for a relatively prompt move toward reducing policy accommodation to avoid overshooting the Committee’s unemployment and inflation objectives over the medium term. These participants were increasingly uncomfortable with the Committee’s forward guidance. In their view, the guidance suggested a later initial increase in the target federal funds rate as well as lower future levels of the funds rate than they judged likely to be appropriate. They suggested that the guidance should more clearly communicate how policy-setting would respond to  the evolution of economic data.

Here is the Fed on the topic of labor slack, or focusing on any and every incremental weakness in the labor market now that all of the Fed's targets have been reached and it is Yellens' job to pound the table on the weaknesses to "justify" ongoing ZIRP:

... some members expressed reservations about describing the extent of underutilization in labor resources more broadly. In particular, they worried that the degree of labor market slack was difficult to characterize succinctly and that the statement language might prove difficult to adjust as labor market conditions continued to improve. Moreover, they were concerned that, despite the improvement in labor market conditions, the new language might be misinterpreted as indicating increased concern about underutilization of labor resources. At the conclusion of the discussion, the Committee agreed to  state that labor market conditions had improved, with the unemployment rate declining further, while also stating that a range of labor market indicators suggested that there remained significant underutilization of labor resources. Many members noted, however, that the characterization of labor market underutilization might have to change before long, particularly if progress in the labor market continued to be faster than anticipated.

Here is the Fed on missing the winter weather forecast:

In particular, although participants generally saw the drop in real GDP in the first quarter as transitory, some noted that it increased uncertainty about the outlook, and they were looking to additional data on production, spending, and labor market developments to shed light on the underlying pace of economic growth. Moreover, despite recent inflation developments, several participants continued to believe that inflation was likely to move back to the Committee’s objective very slowly, thereby warranting a continuation of highly accommodative policy as long as projected inflation remained below 2 percent and longer-term inflation expectations were well anchored.

Here is the Fed lamenting the worst.recovery.ever. and still unable to grasp that it is the Fed's fault there is no recovery for 90% of the population:

Labor compensation was still rising only modestly. Many participants continued to attribute the subdued rise in wages to the remaining slack in the labor market; it was noted that the elevated level of relatively low-paid part-time workers was holding down overall wage increases. Several other participants pointed to reports that wage pressures had increased in some regions and occupations that were experiencing labor shortages or relatively low unemployment. However, a couple of participants indicated that the pass-through of labor costs has been more attenuated since the mid-1980s and that wage pressures might not be a reliable leading indicator of higher inflation.

And last but certainly not least, and in our opinion, most important, is the fact that the Fed still has no idea just how it will "unwind" ZIRP, let alone QE:

Most participants anticipated that, at least initially, the IOER rate would be set at the top of the target range for the federal funds rate, and the ON RRP rate would be set at the bottom of the federal funds target range. Alternatively, some participants suggested the ON RRP rate could be set below the bottom of the federal funds target range, judging that it might be possible to begin the normalization process with minimal or no reliance on an ON RRP facility and increase its role only if necessary. However, many other participants thought that such a strategy might result in insufficient control of money market rates at liftoff, which could cause confusion about the likely path of monetary policy or raise questions about the Committee’s ability to implement policy effectively.

Which leads to the following:

Participants ... stressed the importance of communicating a clear plan while at the same time noting the importance of maintaining flexibility so that adjustments to the normalization approach could be made as the situation changed and in light of experience. Participants requested additional analysis from the staff on issues related to normalization as background for further discussion at their next meeting. A few participants also suggested that the Committee should solicit additional information from the public regarding the possible effects of an ON RRP facility, but some others pointed out that the Committee would continue to receive such feedback informally in response to its ongoing communications regarding normalization.

Yep: the Fed will ask the banks how to exit the mess it has created to bailout the banks. In other words, don't hold you breath for a ZIRP end any time soon. But don't worry, the Fed will let you know long in advance of a rate hike it will do so:

Participants agreed that the Committee should provide additional information to the public regarding the details of normalization well before most participants anticipate the first steps in reducing policy accommodation to become appropriate.

Funny stuff, but nothing ever beats this: "As a result, they generally saw the vulnerabilities in the financial system as well contained."

Full minutes:

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order66's picture

Buy signal if there ever was one.

AllThatGlitters's picture

Gold initially down:

Live Gold:

Does that mean is pops by end of day?

flacon's picture

Why is the S&P not going up on this news? All News - Is Good News - All The Time! 

max2205's picture

Can we have a new more use of the term TRANSITORY

flacon's picture

Also ban the word "recovery".

Pinto Currency's picture



Physical metals prices rocketing in Shanghai:


Shanghai physical Palladium 19% premium to LPPM and Shanghai Silver 8% premium to LBMA derivatives market.

London and Comex fading from relevancy.

ZIRP is creating an inflationary wave.



pods's picture

Raise rates?  lol

I triple Dog Dare you Mr. Yellen.


MalteseFalcon's picture

Rates are never going up, unless our friends in Belgium have another very powerful trick up their sleeve.

There is no penalty to the FED or their members for lying.

sixsigma cygnusatratus's picture

Belgian chocolate rations will be decreased from 30 grams to 100 kgs.  All is well.

Bay of Pigs's picture

Indeed. There are no Hawks at the FED. Its all bullshit and propaganda.

Stoploss's picture

Look!! A purple polka dotted elephant!!!

KidHorn's picture

They may raise them 0.25% or 0.5% over two meetings. It won't really effect anything either way. It will just scare a few people.

InjectTheVenom's picture


I Write Code's picture

I'm not an expert at voodoo, so can ZIRP be maintained after QE stops or can ZIRP stop while QE continues?

101 years and counting's picture

ZIRP will be here for years. possibly decades.  when the fed stops printing, "markets" crumble.  the thought of them actually raising rates is flat out hilarious.  they'll be printing massive amounts within 3 months of the end of this round of fucking over the bottom 95%, aka QE.

cougar_w's picture

NAE either, but from what I hear the logic goes like this: no QE leads to no bid on UST (no free money for the dealers) so UST yields must go up to attract buyers. Lots of things are tied to the 10Y, so rates go up all over the place. The USG starts to pay out big bank on the debt, taxes don't come close to covering that, and the deficit rockets. Credit becomes expensive, rates go up on that signal. Enter the death spiral, see you again in 100 years.

If the Fed keeps QE but raises rates, you get the same thing only directly, because the USG cannot service their debt. The dealers won't buy when rates are going up, they just keep any QE coming their way and try to ride out the storm. Credit becomes expensive, rates go up on that signal. Enter the death spiral, see you again in 100 years.

This is being caught between Scylla and Charybdis.

The way is shut.

youngman's picture

I agree with you..but that is old Econ 101..we are in a new world....And I have no idea what they will do....I expect the Fed to buy everything..until the rest of the world just says NO MORE......

cougar_w's picture

Right now the Fed are not direct buyers. They are doing this sanitizing QE thing instead. The question was, what happens if they stop QE, or if they raise the discount rate. What you suggest is that the Fed will become direct buyers since without QE there are no other buyers.

If the Fed become direct buyers then I suspect the game is simply over.

I have no idea what happens then. It would probably depend on world events. The Fed would print the money they need to buy UST directly, and give the fresh fiat money to the USG to spend how they see fit including to by bombs for the New Caliphate -- and then the entire fucking world would go ape-shit insane on the spot. I think global trade and the entire notion of a global economy -- supported by any kind of reserve currency -- will simply evaporate overnight and not be seen again forever, certainly not for many hundred years.

HpDeskjet's picture

Nope.... If QE stops, everybody who bought stocks, high yield, EMD, commodities etc. etc. etc. (risky assets), will start to sell those and buy back treasuries... The only reason why people bought those riskier assets was the "promise" that there would be more liquidity in the system = higher prices. Nobody cared about valuations while buying. Earnings on the S&P have been flat since 2010!!!!!!!!

KidHorn's picture

The dealers buy UST and then sell it to the fed a few days later. Everyone knows the FED effectively monetizes US debt and has been doing so for several years. They're not fooling anyone.

Chuck Knoblauch's picture

HAHAHAHAHA!!!!!!!!!!!!!!!!!!!!!!!! Good1

Lore's picture

Whatever it says is three weeks out of date, so who cares?  Actually, why does anybody pay attention to these people anymore?  They just lie about everything.

FrankieGoesToHollywood's picture

Three weeks and a day for TPTB.

Lore's picture

"The tooth fairy may come Q2 2015, if we eat our broccoli and wish upon a star."

Dr. Engali's picture

Go ahead raise them, and watch the whole system take a shit.

Everybodys All American's picture

History tells if the choice is to save the stock or the debt markets the debt market is always the choice. After all is said and done this outcome has just simply been put off as long as was perceived even possible. Is this not what we have been asking the Fed do for five years?

TheRideNeverEnds's picture

So what they are going to do, raise rates 5 basis points some time next year?

walküre's picture

10yr at two and fitty.

Sure, raise rates fuckers.

PontifexMaximus's picture

Let them have a try to cut the balance sheet!

Schmuck Raker's picture


By one billion per year?

Yen Cross's picture

     The risk is to the downside for usdx now. If Mr. Yellen is even slightly dovish Friday during her speech the usd is going to selloff.

carbonmutant's picture

Janet does Round 2 on Friday...

Hohum's picture

End QE, more reverse repos.

Bossman1967's picture

Are these fuckers just plain stupid or what. Raise interest rates on 17.7 trillion sure especially considering these crooks in Washington still spending like a whore on crack

yogibear's picture

A FOMC jaw-flapping session. More of the same. Bubblizing stocks and the credit markets. Back-door buying of treasuries.

The zoo is loaded with chimps that can do the same thing. Replace William Dudley at the NY Fed trading desk with a chimp that gets a banana every time he hits the green stock index buy button. The red sell button is disabled anyway.

sheikurbootie's picture

Same, same all the time.  Everything is double plus good.  Rates must go up, they say.  But, rates go down instead.  This plan works until the day it doesn't.  I'll be surprised if a black swan event doesn't appear before the end of the year.  Focus the people on the small riot in Ferguson, Mo.  The sheeple won't notice the financial foundation collapsing.  THERE IS NO FIXING THIS ECONOMIC SITUATION.

Lewshine's picture

The market shows these bozo's everytime they start talking like they CAN raise rates - Its absolute bullshit! The moment the Dow drops 200 points, Yellen will jump the potium and talk about how their inflation target hasn't yet been hit...Or some other algo orgazimic 1000 point higher line of crap! Its been 6 years!! Does it have to be 10 years before we start to realize THEY CAN'T let rates rise??

Ness.'s picture

Meme:  Shut up and buy stocks.  If you don't, they'll do it for ya.  

Dead Man Walking's picture

time to tax food stamps to pay for this debt

buzzsaw99's picture

fed heads = always liars

spinone's picture

When the stock market shudders the liquidity will slosh into commodities that we all need to live. It will be either levitate the stock market forever, or raise rates when it goes down to stop the food riots when bread is $10 a loaf.

SickDollar's picture

what a joke

we all know the Feds cant raise the rates unlless  you are ready to  crash the Financial System




I dare you to do it liars 

Everybodys All American's picture

The row is telling them you either raise rates now or we will not buy your debt. The loss of the reserve currency status scares the absolute hell out the Fed and that will happen sooner than anyone thinks if they keep rates at zero.

KidHorn's picture

What alternative does anyone have? Everyone's interest rates are close to 0. The people who buy UST at 0.5% interest aren't going to suddenly buy argentine debt at 15% because the UST rate didn't go up to 0.75%.

Everybodys All American's picture

They would buy US treasuries with both fists if the fear of a stock market crash became real.

youngman's picture

I think the Fed will buy stocks too..if it was to save the economy...say we have a 30 to 40 % drop in stocks in a week or so...I would bet the Fed would jump in to be the backstop....the fear buyer....its that or panic sets in...

TabakLover's picture

Does the Fed have any idea WTF they are doing?

buzzsaw99's picture

sure they do. the looting will continue until morale improves.