FOMC Saw No Needs To Ease Unless Growth Slows

Tyler Durden's picture

So much for the Hatzius and Hilsenrath prognostications. Headlines coming in:

  • FOMC SAW NO NEED TO EASE ANEW UNLESS GROWTH SLOWS, MINUTES SHOW
  • MOST FOMC PARTICIPANTS SAW `LITTLE EVIDENCE OF COST PRESSURES
  • FOMC PARTICIPANTS SAID LABOR MARKET CONDITIONS HAD IMPROVED
  • MOST FOMC PARTICIPANTS EXPECTED INFLATION RATE AT 2% OR LESS
  • MANY FOMC PARTICIPANTS SAW `EASED' STRAINS IN GLOBAL MARKETS
  • MOST ON FOMC SAW TEMPORARY IMPACT FROM RISING OIL, GAS PRICES
  • FOMC SAID SIGNIFICANT OUTLOOK CHANGE COULD ALTER 2014 RATE PLAN

Apparently $4 gas has an impact.

The optimism abounds:

Participants generally observed the continued improvement in labor market conditions since the January meeting. A couple of participants stated that the progress suggested by the payroll numbers was also apparent in a broad array of labor market indicators, and others noted survey measures suggesting further solid gains in employment going forward. One participant pointed to inflation readings and a high rate of long- duration unemployment as signs that the current level of output may be much closer to potential than had been thought, and a few others cited a weaker path of potential output as a characteristic of the present expansion.

...If only so far - some appear to read Zero Hedge:

However, a number of participants judged that the labor market   currently featured substantial slack. In support of that view, various indicators were cited, including aggregate hours, which during the recession had exhibited a decline that was particularly severe by historical standards and remained well below the series’ pre-recession peak; the high number of persons working part time for economic reasons; and low ratios of job openings to unemployment and of employment to population.

Also, on the impact of weather:

Several participants noted that the unseasonably warm weather of recent months added one more element of uncertainty to the interpretation of incoming data, and that this factor might account for a portion of the recent improvement in indicators of employment and housing.

But this apparently means little: $2 trillion in CB liquidity apparently may even boost GDP... Briefly:

In a contrasting view, the improvements registered in labor market indicators could be seen as raising the likelihood that GDP data for the recent  period would undergo a significant upward revision.

Guess who is who here, when discussing inflation:

With longer-run inflation expectations still well anchored, most participants anticipated that after the temporary effect of the rise in oil and gasoline prices had run its course, inflation would be at or below the 2 percent rate that they judge most consistent with the Committee’s dual  mandate. Indeed, a few participants were concerned that, with the persistence of considerable resource slack, inflation might be below the mandate-consistent rate for some time. Other participants, however, were worried that inflation pressures could increase as the expansion  continued; these participants argued that, particularly in light of the recent rise in oil and gasoline prices, maintaining the current highly  accommodative stance of monetary policy over the medium run could erode the stability of inflation expectations and risk higher inflation.

Yet at the end of the day all depends on the Russell 2000, pardon, the Economy:

With the economic outlook over the medium term not greatly changed, almost all members again agreed to indicate that the Committee expects to maintain a highly accommodative stance for monetary policy and currently anticipates that economic conditions—including low rates of resource  utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels for the federal funds rate at least  through late 2014. Several members continued to anticipate, as in January, that the unemployment rate would still be well above their estimates of its longer-term normal level, and inflation would be at or below the Committee’s longerrun objective, in late 2014. It was noted that the Committee’s forward guidance is conditional on economic developments, and members concurred that the date given in the statement would be  subject to revision in response to significant changes in the economic outlook.

The hawk, in this case Lacker, speaks:

In contrast, one member judged that maintaining the current degree of policy accommodation much beyond this year would likely be inappropriate; that member anticipated that a tightening of monetary policy would be necessary well before the end of 2014 in order to keep inflation close to the Committee’s 2 percent objective.

And more form Lacker:

Mr. Lacker dissented because he did not agree that economic conditions were likely to warrant exceptionally low levels of the federal funds rate at least through late 2014. In his view, with inflation close to the Committee’s objective of 2 percent, the economy expanding at a moderate pace, and downside risks somewhat diminished, the federal funds rate will most likely need to rise considerably sooner to prevent the emergence of inflationary pressures. Mr. Lacker continues to prefer to provide forward guidance regarding future Committee policy actions through the inclusion  of FOMC participants’ projections of the federal funds rate in the Summary of Economic Projections (SEP).

Finally, this is rather curious:

In addition, several participants suggested that it could be helpful to discuss at a future meeting some alternative economic scenarios and the monetary policy responses that might be seen as appropriate under each one, in order to clarify the Committee’s likely behavior in different  contingencies.

Now, by alternative, do they mean scenarios just in case the Fed may be, just in the off chance, wrong?

Full report link.