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FOMC Minutes: Some Fed Officials Sought To Retain Option For QE3

Tyler Durden's picture


It appears Operation Twist was not enough for all...


And remember Golidlocks:


Specifically on why QE3 is coming, only a matter of time:

Meeting participants expressed a range of views on the potential efficacy of policy tools tied to the size and composition of the Federal Reserve’s balance sheet. Many judged that these policies could provide additional monetary policy accommodation by lowering longer-term interest rates and easing financial conditions at a time when further reductions in the federal funds rate are infeasible. However, a number saw the potential effects on real economic activity as limited or only transitory, particularly in the current environment of balance sheet deleveraging, credit constraints, and household and business uncertainty about the economic outlook. Participants noted that a SOMA maturity extension program would not expand the Federal Reserve’s balance sheet or the level of reserve balances, and that the scale of such a program was necessarily limited by the size of the Federal Reserve’s holdings of shorter-term securities so that it could not be repeated to provide further stimulus. A number of participants saw large-scale asset purchases as potentially a more potent tool that should be retained as an option in the event  that further policy action to support a stronger economic recovery was warranted. Some judged that large-scale asset purchases and the resulting expansion of the Federal Reserve’s balance sheet would be more likely to raise inflation and inflation expectations than to stimulate economic activity and argued that such tools should be reserved for circumstances in which the risk of deflation was elevated.

On why Goldman did not get the desired reduction in IOER:

Participants discussed whether to reduce the IOR rate, weighing potential benefits and costs. A number of participants judged that a reduction would result in at least marginally lower money market rates and could help stimulate bank lending. Several noted that reducing the IOR rate could help signal the Committee’s intention to keep the federal funds rate low. Some  participants observed that keeping the IOR rate noticeably above the market rate on other safe, short-term instruments could be perceived as subsidizing some banking institutions. However, some others noted that a recent change in deposit insurance assessments had the effect of significantly reducing the net return that many banks receive from holding reserve balances. Moreover, many participants voiced concerns that reducing the IOR rate risked costly disruptions to money markets and to the intermediation of credit, and that the magnitude of such effects would be difficult to predict in advance. Participants generally agreed that they needed more information on the likely effects of a reduction in the IOR rate in order to judge its usefulness as a policy tool in the current environment.

On increased transparency:

Most participants also indicated that they saw advantages in being more transparent about the conditionality in the Committee’s forward guidance by providing more information about the economic conditions to which the guidance refers. They judged that such a step could make the Committee’s forward guidance more effective and increase the likelihood that financial markets would respond to incoming economic information in ways that would help monetary policy achieve its goals. However, several participants saw a risk that any explicit statement of economic conditions specified in the Committee’s forward guidance could be mistaken for a statement of its longer-run objectives. Others thought this risk of misinterpretation could be managed through careful communications. A number of participants suggested that the Committee’s periodic Summary of Economic Projections could be used to provide more information about their views on the longer-run objectives and the likely evolution of monetary policy.

The Fed on the USd and on stocks:

The foreign exchange value of the dollar increased over the intermeeting period, reflecting a flight to safety that also contributed to lower benchmark sovereign yields in Germany, the United Kingdom, and Canada. In contrast, the yield on two-year Greek sovereign bonds rose sharply as market participants became increasingly concerned that Greece might default on its sovereign debt. Equity prices in the euro area decreased over the intermeeting period, following sharp declines in early August. After falling steeply before the August FOMC meeting, emerging market equity prices were little changed, on net, over the period.

The Fed on other central planners around the world:

The European Central Bank continued to purchase, in the secondary market, sovereign debt of euro-area countries. Yields on Italian and Spanish debt, which declined following reported ECB purchases in early August, drifted higher during the intermeeting period. Prices of money market futures contracts indicated that monetary policy was expected to become more accommodative in both the euro area and the United Kingdom. The Swiss National Bank took several steps to ease monetary policy, including intervening in the foreign exchange market to counter further appreciation of its currency and eventually announcing that it is prepared to buy unlimited quantities of foreign currency to prevent the Swiss franc from trading in the foreign exchange market at a rate below 1.2 Swiss francs per euro. Citing concerns over the global economic outlook, the central bank of Brazil reduced its policy rate after having raised it several times earlier this year. In contrast, China continued to tighten its monetary policy, extending reserve requirements to a wider range of bank liabilities as it attempted to rein in off-balance sheet lending by its banks.

And why wages are never going up, at least not until money is falling from the skies:

Available measures of labor compensation indicated that wage increases continued to be restrained by the large margin of slack in the labor market. Average hourly earnings for all employees posted a small gain, on net, over July and August, and their rate of increase from 12 months earlier remained subdued.

Lastly, why the dissenters dissented:

Messrs. Fisher, Kocherlakota, and Plosser dissented because they did not support additional policy accommodation at this time. Mr. Fisher saw a maturity extension program as providing few, if any, benefits in support of job creation or economic growth, while it could potentially constrain or complicate the timely removal of policy accommodation. In his view, any reduction in long-term Treasury rates resulting from this policy action would likely lead to further hoarding by savers, with counterproductive results on business and consumer confidence and spending behaviors. He felt that policymakers should instead focus their attention on improving the monetary policy transmission mechanism, particularly with regard to the activity of community banks, which are vital to small business lending and job creation. Mr. Kocherlakota’s perspective on the policy decision was again 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, and the one-year-ahead forecast for inflation, had risen, while unemployment, and the one-year-ahead forecast for unemployment, had fallen. He did not believe that providing more monetary accommodation was the appropriate response to those changes in the economy, given the current policy framework. Mr. Plosser felt that a maturity extension program would do little to improve near-term growth or employment, in light of the ongoing structural adjustments and fiscal challenges both in the United States and abroad. Moreover, in his view, with inflation continuing to run above earlier forecasts, such a program could risk adding unwanted inflationary pressures and complicate the eventual exit from the period of extraordinarily accommodative monetary policy.

Full report:

FOMC Minutes Sept


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Wed, 10/12/2011 - 14:08 | 1766516 john39
john39's picture

time for more carrots I see...  dangling on that damn stick.

Wed, 10/12/2011 - 14:16 | 1766546 redpill
redpill's picture

You know who it is....

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."


"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."


"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."


Learn it, bitchez!

Wed, 10/12/2011 - 14:24 | 1766578 GenX Investor
GenX Investor's picture

Some in the Fed won't be satisfied until we end up with a smoldering heap of waste left for the 99%-ers to clean up. 

Wed, 10/12/2011 - 14:30 | 1766588 dlmaniac
dlmaniac's picture


Unreleased MINUTES reveal that:


  • All FOMC members felt gold and silver price are too high to be comfortable.
  • All FOMC members felt that further CRIMEX shenanigans are warranted.
  • Some members suggested Blythe be fired should gold go back to 1900 and silver 50 again.


Wed, 10/12/2011 - 14:33 | 1766606 Herd Redirectio...
Herd Redirection Committee's picture

The IOR wasn't lowered because then there would be huge incentive to finally lend all those 'reserves' the banks have been holding (parked profitably w/ the Fed), and it would cause the inflation genie to come out of his lamp, and refuse to go back in.   Suddenly with increased lending there would be a short-term boom, more economic activity as the wheels are greased, but then prices would start rising.  Once prices start rising of commodities, PM, and energy, well, the US reserves held all over the world would likely trickle back at first, and then flood back, all at once.  Result:  Death of the US dollar as world reserve currency.

Its still coming, but reducing the IOR would have accelerated events, which apparently, are going 'according to plan' (IMO the Fed knows it is slowly destroying the dollar).

Check out the latest from the Capital Research Institute "Jubilee, An Idea Whose Time Has Come":

Wed, 10/12/2011 - 14:29 | 1766590 papaswamp
papaswamp's picture

Ludwig Bitchez

Wed, 10/12/2011 - 14:40 | 1766613 bigdumbnugly
bigdumbnugly's picture

i got it.  i got it.  i got it.

no.  shit, i lost it.

Wed, 10/12/2011 - 14:52 | 1766682 YesWeKahn
YesWeKahn's picture

Bernanke obviously disagree, he will print to infinity.

Wed, 10/12/2011 - 14:17 | 1766548 narapoiddyslexia
narapoiddyslexia's picture

"The history books will shame Ben."

[That's a link.] Sometimes, Krasting says the right thing.

Wed, 10/12/2011 - 15:01 | 1766727 Hedgetard55
Hedgetard55's picture

like the blind squirrel...

Wed, 10/12/2011 - 14:17 | 1766559 nope-1004
nope-1004's picture

It's a truly pitiful existence to have our everyday lives run by accountants, errr..... white collar criminals.  FOMC?  WTF name is that?  They are the FBC, Federal Banking Cartel - bunch of glorified accountants.  And as most probably know, the quickest way to kill entrepreneurial spirit is to have an accountant steer the ship.

Really, if you think about it, chaos is not too far off.  Why should anyone struggling to makes ends meat give a rip about consequences when survival is at stake.  I see nothing but chaos ahead.  The masses will speak, eventually.


Wed, 10/12/2011 - 23:52 | 1768365 covert
covert's picture

the options are pointless.


Wed, 10/12/2011 - 14:08 | 1766518 The Piker
The Piker's picture


Wed, 10/12/2011 - 14:09 | 1766520 Cassandra Syndrome
Cassandra Syndrome's picture

Crack heads craving crack, bitchez

Wed, 10/12/2011 - 14:10 | 1766521 TheSilverJournal
TheSilverJournal's picture

The malinvestments will never be allowed to be exposed or it will all crash. The mispricing of money (0% rates + QE) is causing too much malinvestment for the economy to keep up with and the more money is mispriced, the more malinvestment there is and the more QE is needed just to stay even. When rates are held just a little too low, it causes just a little malinvestment, but what rates are held extremely low (0%), it causes an EXTREME AMOUNT OF MALINVESTMENT. Now that we're at the point where we can no longer lower rates to keep the malinvestments from becoming exposed, we've kicked it in a whole nother gear by moving on to QE. In order to keep the mamlinvestments from becoming exposed, I believe that the Fed will eventually buy everything: treasuries, municipal bonds, corporate bonds, companies, real estate. Say hello to the next biggest landlord in the US..the Fed.

Wed, 10/12/2011 - 15:02 | 1766733 Hedgetard55
Hedgetard55's picture

+55 gazillion.


Ben trying to solve a problem caused by malinvestment from low interest rates with even LOWER rates.

Wed, 10/12/2011 - 18:16 | 1767476 trav7777
trav7777's picture

you guys are wrong, sadly, but you don't know how

Interest rates must be paid by the ECONOMY, which must grow at a rate in excess of the interest rate.

Our economy isn't doing that anymore.  There is no MAGIC that pays you this 6% you think you deserve, ok?

Wed, 10/12/2011 - 14:10 | 1766524 mn1
mn1's picture

buy buy dow going for 250 point day....thank you ZH keep those negative comments coming

Wed, 10/12/2011 - 14:11 | 1766526 homersimpson
homersimpson's picture

this is a guy who's lost his shirt before..

Wed, 10/12/2011 - 14:13 | 1766529 mn1
mn1's picture

and your short i guess

Wed, 10/12/2011 - 14:13 | 1766532 homersimpson
homersimpson's picture

Whatever, Robo. 14k was a long time ago.

Wed, 10/12/2011 - 14:28 | 1766589 tekhneek
tekhneek's picture

Buy FAZ on -10% days. Sell on +10% days.

Easy as pie.

Wed, 10/12/2011 - 14:29 | 1766593 homersimpson
homersimpson's picture

Give this man a prize!

Wed, 10/12/2011 - 14:17 | 1766552 THE_YAK
THE_YAK's picture

keep fucking crying, your tears make great soup

Wed, 10/12/2011 - 14:59 | 1766720 cosmictrainwreck
cosmictrainwreck's picture

let's see the A/H.... that's where all the big swingin' dicks decide what happens.....

Wed, 10/12/2011 - 14:12 | 1766528 Dick Darlington
Dick Darlington's picture

Same broken record playing and same broken minds thinking they know it all. Their answer to all the problems which they of course deny existing is more of the same failed "policy", "justified" by the goal seeked set of "data".

Wed, 10/12/2011 - 14:30 | 1766595 tekhneek
Wed, 10/12/2011 - 14:13 | 1766531 Archimedes
Archimedes's picture

4 years (going on 5) of the same s**t. Nothing changes, Doom, gloom and deflation are coming and market drops to 10,800.

Governments promise to print and market goes back to 11,500 in a heartbeat. We will be stuck in this 700 point trading range for the next 5 years. Nothing will get fixed and nothing will collapse. It will just keep recycling over and over.....


Wed, 10/12/2011 - 14:13 | 1766534 rambler6421
rambler6421's picture

Gold bitchez!

Wed, 10/12/2011 - 14:14 | 1766536 The Axe
The Axe's picture

any word of QQQQQ   more  QQQQQQ should be good for a another 300 point only goes down on volume...No volume...up we

Wed, 10/12/2011 - 14:15 | 1766542 reader2010
reader2010's picture


Wed, 10/12/2011 - 14:18 | 1766544 scatterbrains
scatterbrains's picture

nice bullish flag on the brent contract. keep printing bitches!! Looks like 130ish on deck.   If that's too much for the brits to bare print some more bitches

Wed, 10/12/2011 - 14:17 | 1766549 slewie the pi-rat
slewie the pi-rat's picture

this is not rocket science

the reason there is no evident LSAP right now is that the chairsatan doesn't want LSAP right now.  if & when he wants it, he will do it.

Wed, 10/12/2011 - 14:17 | 1766551 mynhair
mynhair's picture

Insanity knows no bounds.

Wed, 10/12/2011 - 14:17 | 1766555 buzzsaw99
buzzsaw99's picture

Ship the whole lot of them to a siberian gulag.

Wed, 10/12/2011 - 14:18 | 1766562 nyse
nyse's picture

Wake me up when there's blood in the streets please. I will be sleeping under that bridge over there.

Wed, 10/12/2011 - 14:43 | 1766652 cosmictrainwreck
cosmictrainwreck's picture

I notice you're LEADING dow & Sp today....whazzup wit dat?

Wed, 10/12/2011 - 14:19 | 1766565 nobusiness
nobusiness's picture

Why does the russell 2000 rally on Fed Speak.  QE infinity only helps the big banks.

Wed, 10/12/2011 - 14:19 | 1766567 tony bonn
tony bonn's picture


these fucktards are blithering idiots....qe has produced no growth because it is not a growth is a shell game of breeding and shuffling debt...the economy is accelerating its shrinkage - it never recovered from the depression of 2001....marginal productivity of debt is negative....

the fucktards of the fed should be hired as grill cooks at mcdonalds - not leaders of centralized economic planning....( no offense to mcdonald's grill cooks) but then again, when we consider the soviet experience, the suits at the fed do fit the job profile of politburo apparatchiks....


Wed, 10/12/2011 - 14:33 | 1766608 ricksventures
ricksventures's picture

no you are the fuckard for letting them do it


they are smart, real smart, they want the hyperinflation, they want it BAD !!!!

hyperinflation will wipe out the debt once and for all !!! hyperinflation would let them enslave the moronic americans full force on and it would let them confiscate all gold and guns by force of drones


get ready for some human BBQ on the streets (the smell of burned human flesh...)

Wed, 10/12/2011 - 14:43 | 1766649 4shzl
4shzl's picture

Sounds like jibber-jabber, functions like jibber-jabber.

But the folks who count ain't buyin' it today.  Here's the only chart you need to look at:



Wed, 10/12/2011 - 14:43 | 1766651 Mr_Wonderful
Mr_Wonderful's picture

Water under the bridge.

The stock market is clearly indicating that further QE isn´t needed.

Interest rates will shoot up which is great for savers but not so for debtors. Both will lead to decreasing consumption in the intermediate to long run, recession and increased unemplyment.


Wed, 10/12/2011 - 14:54 | 1766686 SheepDog-One
SheepDog-One's picture

QE has produced no growth at all. Just a PUMP day to get over the top and theyll let it slide back down.

Wed, 10/12/2011 - 14:29 | 1766592 papaswamp
papaswamp's picture

These aren't the droids you are looking for Bitchez!

Wed, 10/12/2011 - 14:30 | 1766596 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

... yeah, 'cause QE1 and QE2 really got the economy spurring along.

Wake up, it's to enslave you!

Wed, 10/12/2011 - 14:30 | 1766601 firstdivision
firstdivision's picture


Wed, 10/12/2011 - 14:33 | 1766609 mynhair
mynhair's picture

(Canceled TZA bid, will go for 35 after the Unemployed Welfare report.)

Wed, 10/12/2011 - 14:33 | 1766611 broke433
broke433's picture

The fed is smart, they can just mention QE and the markets would skyrocket because they conditionalized it by doing QE two previous times. Now it's like they don't even have to do it but just think about it and it will get the same effect.

Wed, 10/12/2011 - 14:42 | 1766644 TradingJoe
TradingJoe's picture

I respectfully beg to differ, remeber the 3 pigs and the wolf?!?! Sure they did it 2 times and "promissed" another 2, when do you think, will it be IGNORED!?! After the 3rd or 5th time?!?!

Be careful Bubba, there are "things" out there that can BITE/Kill you! :)))

Wed, 10/12/2011 - 14:43 | 1766648 papaswamp
papaswamp's picture

Pavlov's Market....sound theory.

Wed, 10/12/2011 - 14:35 | 1766619 broke433
broke433's picture

I <3 da fed

Wed, 10/12/2011 - 14:36 | 1766624 Sutton
Sutton's picture

I do the food shopping.  Over weekend went with beloved wife and she was flabbergasted by the prices.  And the reduced size of the goods.

Wed, 10/12/2011 - 14:39 | 1766631 AldoHux_IV
AldoHux_IV's picture

The fed failed in any mandate-- don't get it twisted just end the fed.  Plain and simple.

Wed, 10/12/2011 - 14:45 | 1766658 razorthin
razorthin's picture

Ha Ha, a$$holes, an air pump to the indices a la the rumor mill won't help that cause.

Wed, 10/12/2011 - 14:46 | 1766662 YesWeKahn
YesWeKahn's picture

This type of bullshit, you phuck it and kill it.

Wed, 10/12/2011 - 14:46 | 1766663 TumblingDice
TumblingDice's picture


Fed trying to manage expectations


Wed, 10/12/2011 - 14:46 | 1766664 adr
adr's picture

So QE2 already caused many stocks to double nad even triple. QE3 could cause them to double again. So Amazoncould hit a P/E of 300 on no real rvenue growth. Deckers will go to $350 a share even though I don't know a single person who wears one of their products.

LULU fuck it could make a valution of $500 a share look cheap. There is no reason for any of it. How is there going to be a boom in consumption of discretionary products if nobody has the extra cash to buy them.

This market trades on a theory of a world that doesn't exist. I could invest all my extra cash and get lucky to make enoguh to pay off my house. Then what? I probably won't have a job because my company will have been put out of business by currency exchange alone.

I'd rather have Dow 5000 and $1.25 gas so I could afford to build a business and employ people instead of barely being able to afford to get out of the  driveway.

Wed, 10/12/2011 - 14:57 | 1766699 SheepDog-One
SheepDog-One's picture

'On why QE is coming, only a matter of time'...

Yea right I guess the DOW's too low for QE, better wait till they pump it back to 12,800 again. Nonsense, carrot and stick.

Wed, 10/12/2011 - 15:07 | 1766759 Hedgetard55
Hedgetard55's picture

What a conundrum. FED just mentions QE and market rips, but they forget that there can be no QE unless market (DOW) hits 9,700 again.

Wed, 10/12/2011 - 15:30 | 1766859 Mr_Wonderful
Mr_Wonderful's picture

It´s most likely a standard bear market distribution rally.

After the bid drop from July to early August, big money quickly  set up a trading range, which it has been milking to the hilt since. Now that the upper limit has been reached, systematic selling should resume soon.

Wed, 10/12/2011 - 17:03 | 1767168 Hedgetard55
Hedgetard55's picture

Mr. W,


     Your avatar made me laugh. Thanks, I needed it.

Wed, 10/12/2011 - 17:59 | 1767402 ivars
ivars's picture

I think that current irrational exuberance epxressed in buying stocks of EUR is like denial, Feast in the time of plaque. Greece will default, Eur move into inflationary recession, banks suffer, USA stok market down, confidence and wealth effect out of the window, rdeflationary recession q1 2012. Anyway, I think, this is the last time ( may be whole october or november) to get into USD cash, out of stocks. Not as good as at 12800, but 11500 is not bad either. And buy silver or whatever is related to it and can not be overtaxed or confiscated,or nationalized. Not gold, yet- silver will return 300% in 2012, while gold almost nothing. If the markets function still normally in 2012 ( recession, who knows) , the best bet is get fast profits and get them out before someone taxes them 100% or declares illegal.

I have made also a correct short term ( 1 week) prediction about sharp increase in USD per EUR after October 5th, whose consequences I would like to expand upon. The area of correct short term ( 2 weeks ) prediction is encircled to make it visible in the long term graph.

Old EUR USD 2011_2017_prediction_Oct_2011_in circle.png (82.18 KB) Viewed 1244 times

So what I have predicted on October 5th is , that USD per EUR will go up from 1,325 to 1,40-1,425-1,45 till the end of the year 2011. We see the first week of this movement already (of course, it will not move up in straight line, with hiccups, the line is to thick, but the general trend is clear):

USD_per_EUR Sept14_Oct_12_2011.png (22.42 KB) Viewed 1242 times

Now, where is the logic? Eurozone debt crisis comes to its conclusion, Greece will default in November, that has negative impact on banks which has negative impact on stocks worldwide which has negative impact on business confidence and growth , leading to inflationary recession in Eurozone in q1 2012, and deflationary in the USA in q1 2012.

Why would anyone now buy EURos or Stocks?

I think here we have clear case of psychological denial of what pain is coming so soon, and irrational exuberance of short lived and temporary type impacting the investor behavior. If nothing can be done why not have some fun ( with irrational expectation that somehow things will turn out well).

I think one name for such behavior is (coming from Russian): "Feast in Time of Plague". There must be English saying with similar message.

Looking in the charts, what will happen next:

Greece will default, and from January 2012 there are less and less USD per EUR. As USDx grows, and so does quite a few PM/commodity vs USD, EURozone after dismissing Greece and who else will get inflationary, and in recession. Stocks (DJIA) will fall sharply after this last hiccup, and USA will enter recession in q1 2012, deflationary, with increasing dollar index.

1) For those with EUR, this period Oct-Dec 2011 may be the last one at least for 4-5 years either to buy USD or invest directly into PM, other commodities at good price levels given high USD per EUR ratio ( 1,38-1,45 is as high as it will go).
2) For people with investment in stock indexes, especially in USD, this is the last time to get out into cash at decent levels ( DJIA 11600 is not as good as 12800 but its only 10% below post Lehman USA stock market peak);
3) Once in USD cash, there is still time to buy Silver around 33 till April 2012;
4) For gold , there will be another opportunity window in late January 2012 for about a month to buy it at 1580-1620 USD again.That corresponds with the next dip in USD per EUR in early 2012 to 1,325.

Wed, 10/12/2011 - 18:15 | 1767473 Pete15
Pete15's picture

According to Jim Rogers we have QE 3 already. Im guessing most of you saw his interview yesterday, he said M2 jumped huge in the begining of Augest. 

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