August 9 FOMC Meeting Full Minutes: We Came Thiiiiiiis Close To QE3

Tyler Durden's picture

Highlights from the FOMC minutes:

We came this close to QE3:

  • Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates.
  • Others suggested that increasing the average maturity of the System’s portfolio—perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities—could have a similar effect onlonger-term interest rates.
  • A few participants noted that a reduction in the interest rate paid on excess reserve balances could also be helpful in easingfinancial conditions.
  • A few members felt that recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation. Three members dissented because they preferred to retain the forward guidance language employed in the June statement.

Yet this stopped them:

  • In contrast, some participants judged that none of the tools available to the Committee would likely do much to promote a faster economic recovery, either because the headwinds that the economy faced would unwind only gradually and that process could not be accelerated with monetary policy or because recent events had significantly lowered the path of potential output. Consequently, these participants thought that providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or employment.

On "transitory" commodity prices:

  • Transitory factors, including supply chain disruptions from the earthquake in Japan and a surge in energy and other commodity prices, had pushed up both headline and core measures of inflation for a time.
  • More recently, however, as prices of energy and some commodities have declined from their earlier peaks, headline inflation has moderated.
  • Participants generally noted that, with apparently significant slack in labor and product markets, slow wage growth, and little evidence of pricing power among firms, inflation was likely to decline somewhat over time.

On September 21:

  • Participants noted that devoting additional time to discussion of the possible costs and benefits of various potential tools would be useful, and they agreed that the September meeting should be extended to two days in order to provide more time.

And why the conclusion at this point is foregone:

  • Many participants pointed to the recent downward revision to estimates of economic activity over the past three years, and some to the financial market strains seen during the intermeeting period, as contributing to a downgrade of the outlook for the economy. Moreover, many participants saw increased downside risks to the outlook for economic growth.
  • Meeting participants generally noted that overall labor market conditions had deteriorated in recent months.

And on why the dissenters (now minus 1), are about to be trampled:

Messrs. Fisher, Kocherlakota, and Plosser dissented because they would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an “extended period,” rather than characterizing that period as “at least through mid-2013.” Mr. Fisher discussed the fragility of the U.S. economy but felt that it was chiefly nonmonetary factors, such as uncertainty about fiscal and regulatory initiatives, that were restraining domestic capital expenditures, job creation, and economic growth. He was concerned both that the Committee did not have enough information to be specific on the time interval over which it expected low rates to be maintained, and that, were it to do so, the Committee risked appearing overly responsive to the recent financial market volatility. Mr. Kocherlakota’s perspective on the policy decision was shaped by his view that in November 2010, the Committee had chosen a level of accommodation that was well calibrated for the condition of the economy. Since November, inflation had risen and unemployment had fallen, and he did not believe that providing more monetary accommodation was the appropriate response to those changes in the economy. Mr. Plosser felt that the reference to 2013 might well be misinterpreted as suggesting that monetary policy was no longer contingent on how the economic outlook evolved. Although financial markets had been volatile and incoming information on growth and employment had been weaker than anticipated, he believed the statement conveyed an excessively negative assessment of the economy and that it was premature to undertake, or be perceived to signal, further policy accommodation. He also judged that the policy step would do little to improve near-term growth prospects, given the ongoing structural adjustments and external challenges faced by the U.S. economy.

The latest Philly Fed update should have put Philly Plosser's doubt to rest.

Bottom line: the Fed knows the economy is contracting, but it needs that final deflationary confirmation to launch QE3. That confirmation will have to come in either the ISM, the NFP, or a 15-20% drop in the S&P.


Full report:

FOMC August 9

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trade the day's picture

Strong dollar bitchez


The They's picture

weak banks and treasury market bitchez

PaperBugsBurn's picture



Weiiiiiiimar, bitchez!

espirit's picture

Dollah, gold, oil - all up.  We don't need no stinking QE.

Michael's picture

It's nice to see the Fed will be starting its new currency debasement procedures pretty soon.

TruthInSunshine's picture

While the focus on QE3 is idiotic in terms of a desire to improve the economy (it hasn't and won't; arguably, it's damaged the economy signifcantly by dampening consumption), I think the assumptions about today's Fed talking points as being dovish are very much off the mark:

  • Fed Considered Doing Nothing, Record Shows
  • Among the policy options Fed policymakers considered were changing the size or composition of the Fed’s balance sheet and reducing the interest rate paid on banks’ excess reserve balances.

    On the other hand, some unnamed members of the committee were in favor of doing nothing.

    “Some participants judged that none of the tools available to the Committee would likely do much to promote a faster economic recovery,” the minutes said.

    Ultimately, members of the Federal Open Market Committee, which sets interest rates, decided to give markets clearer guidance on how long interest rates would continue to hover around zero. Some committee members said they preferred to instead peg interest rates to a specific unemployment rate or inflation rate rather than a calendar date.

    Fed officials had expressed particular concern about “a deterioration in labor market conditions,” and debated what the longer-term consequences of such high and sustained levels of unemployment might be.

    Staffers slightly raised their forecasts for inflation for the rest of this year, indicating that the central bank may be especially unlikely to engage in another round of major asset purchases.

    flacon's picture

    "economic recovery" LOL! 

    slaughterer's picture

    "it needs that final deflationary confirmation to launch QE3. That confirmation will have to come in either the ISM, the NFP, or a 15-20% drop in the S&P."

    I am not even sure that the 15-20% drop in the S&P is necessary at this point, given that the Fed does not want people to think that they react immediately to market volatility.   Just a nicely disastrous ISM and/or NFP would do it at this point.  And if either are disastrous, I would not be surprised to see the market rally.   

    trade the day's picture

    sarcasm on regarding the strong dollar bitchez......bitchez

    carbonmutant's picture

    Would you believe "Chuck Norris with a BB gun?" M. Smart

    Subprime JD's picture

    They need to hurry the fuck up with the printathon so we get this current monetary regime over with. Bunch of pussies

    FunkyMonkeyBoy's picture


    PaperBugsBurn's picture




    The They's picture

    What do you mean it doesn't work!? my PM holdings have risen dramatically since the QE I!

    Racer's picture

    Of course it works

    QE = Rich richer and poor poorer

    NotApplicable's picture

    Neither does fractional-reserve central banking. However, this does not seem to stop them from trying.

    TruthInSunshine's picture

    The goal for the next 20 odd days is to baffle with bullshit, apparently.



    FOMC: Some members thought more stimulus could boost inflation risk

    08-30 14:07: FOMC: Some members thought more stimulus could boost inflation risk

    FOMC says some participants judged none of the tools available were likely to do much to support the US economic recovery

    08-30 14:07: FOMC says some participants judged none of the tools available were...


    Spaceman Spiff's picture

    They seem to want to keep a holding pattern until september thus the baffling with bullshit...  too bad for retail investors who are in a 'tilt-a-whirl' market.   No getting off this rollercoaster, just vomit in front of the monitors.

    Id fight Gandhi's picture

    Of course inflation is transitory when you stop easing, the assets crash. But any qe3 would have ro be at least a trillion to get this market to new highs.

    Fuck the poor, they will see even more job losses due to poor economic conditions and higher commodity prices.

    Qe2 = Arab spring. Good job guys.

    NotApplicable's picture

    At some point they will give up on the idea of new highs, instead hoping to keep it flat as the gamblers all seek to cash in their chips.

    Mauibrad's picture

    It doesn't work, but they have to do it until their paradigm fails.  Fisher is the only one with balls in that group.

    Waffen's picture

    QE works.  It sends my Gold and Silver Up..  I am begging for QE3.

    Barry McBear's picture

    Good summary, thanks Tyler.

    shushup's picture

    What a fucking waste of time!

    Dave Thomas's picture

    No whammies, no whammies... STOP!

    NotApplicable's picture


    And it's likely that well thought out.

    IMA5U's picture

    ok.  i get it now.   data will be awful.  but beware QE3 if you want to short this market.  so don't even try doing it despite what the data says.



    --Freedom--'s picture

    But for the shorters out there, won't we need a serious drop in the s and p before qe 3? I don't buy Tylers take that a bad Nfp will be enough for qe3 unless it is accompanied by a big decline in the markets.
    So, I'm still banking on a decline this week or next.

    john39's picture

    the current plan of just dangling the prospect of more QE seems just as effective as actually announcing a plan.  so why bother so long as the market thinks its just around the corner?  they can play this game for some time before the market figures the game out.

    --Freedom--'s picture

    Maybe, but is the market really this stupid? Can't someone program the machines to know that they won't get a qe3 unless they start selling?
    Or is there something else at play here? Maybe they know they can't do qe3 anytime soon, so the idea is just to keep dangling it to keep the markets afloat for a while.

    caerus's picture

    this is imo a normal reaction to the decline in the ES from 8/2 to 8/8...if one were to accept the technical interpretation of the ES from jan through july 2011 as a 7 month h&s that broke on 8/8, then he would expect a roughly (1360-1240=120) point decline before a reaction...ES bounced around (1240-120=1120) would then expect a possible retest of the neckline as resistance, most likely followed by the real decline...volume throughout seems to confirm...

    of course there are many who would disagree...just an opinion

    ??'s picture

    and here we go

    Id fight Gandhi's picture

    So is this end of month melt up hedges just fluffing or a front run for sept meeting?

    TradingJoe's picture

    ...must close greeeeeennnn.....must make bonnuuussseeesssss....:))))

    SumSUN's picture

    $2,000 gold.... preposterous. 

    $10,000 gold... not so much.

    espirit's picture

    Markets are doing fine without QE, that is of course taking into account the dollah has to go to zero.

    trampstamp's picture

    Bottom line: the Fed knows the economy is contracting, but it needs that final deflationary confirmation to launch QE3. That confirmation will have to come in either the ISM, the NFP, or a 15-20% drop in the S&P.


    Sounds more to me that commodity prices need to come down more no?

    Cognitive Dissonance's picture

    Missed my crack hit by >this< much. Damn you Fed dissenters, damn you to hell.

    The They's picture

    Don't worry.  They're just warming up the pipe for you first. give it time...

    Ese Pinche's picture

    This market is way WAY short.. you still might catch a rock wiff or two, to the tune of a hard squeeze.

    sasebo's picture

    And what does all this meaningless gobbly gook (asset purches, accomodation, Systems portfolio, easing financial conditions, stronger forward guidance, etc) mean? Its all just a bunch of stupid elitist asshole bullshit.

    They think that the best way to get the real economy going is to print more paper money. That's it!!!!!! 

    HelluvaEngineer's picture

    They don't care about the "real economy".  Hell, they don't even know what that means.

    Dave Thomas's picture

    I don't think from reading the minutes they even know. I mean look at it. They are rattling off symptopms, symptoms of a disease they refuse to acknowledge. It's like knowing the patient has a huge tear in a blood vessle somewhere, but to keep blood pressure up, they keep pumping blood in.


    Paging Dr Keynes, Dr Keynes!



    bid the soldiers shoot's picture

    as long as the express keeps stopping at 72nd street, I'm not complaining...

    rubearish10's picture

    Run-up to September 21st, because everyone wants to get in front. IS it that simple? YES! Anything (bad) could happen between now and then, hence, even more QE, so no lose play. Heyyyyyyyyyyyy!

    mechawreck2's picture

    Two days is not sufficient...  the Members should convene daily when the market is open.  Stick a Bloomberg in front of each and just set the right prices every minute already.