Some of the key headlines from the just released FOMC minutes via Bloomberg, which however don't show anything out of the ordinary:
- A FEW FED OFFICIALS SAID MORE BOND BUYING MAY BECOME NECESSARY. So (1-Few) did not see it as necessary
- FOMC PARTICIPANTS SAW `GRADUAL’ IMPROVEMENT IN LABOR MARKET
- FOMC OFFICIALS SAW `MODERATE’ IMPROVEMENT IN HOUSEHOLD SPENDING
- FOMC PARTICIPANTS SAW `DEPRESSED’ HOUSING SECTOR
- FOMC OFFICIALS SAID GLOBAL FINANCIAL STRAINS POSED BIG RISKS
- FOMC PARTICIPANTS FORECAST INFLATION WOULD REMAIN `SUBDUED’
- SOME FED OFFICIALS FAVORED QE IF INFLATION FALLS, GROWTH SLOWS
Some interesting observations on the Fed's outlook on the balance sheet:
Most participants indicated that they expected that the normalization of the Federal Reserve’s balance sheet should occur in a way consistent with the principles agreed on at the June 2011 meeting of the FOMC, with the timing of adjustments dependent on the expected date of the first policy tightening. A few participants judged that, given their current assessments of the economic outlook, appropriate policy would include additional asset purchases in 2012, and one assumed an early ending of the maturity extension program.
And some more:
The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability. A few members observed that, in their judgment, current and prospective economic conditions—including elevated unemployment and inflation at or below the Committee’s objective—could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.
Lacker's comment:
In contrast, one member judged that maintaining the current degree of policy accommodation beyond the near term would likely be inappropriate; that member anticipated that a preemptive tightening of monetary policy would be necessary before the end of 2014 to keep inflation close to 2 percent
And here is why the Fed, unlike the market, thinks the economy is not growing (unlike the NASDAPPLE):
A number of factors suggested that the pace of the expansion would continue to be restrained. Although some indicators of activity in the housing sector improved slightly at the end of 2011, new homebuilding and sales remained at depressed levels, house prices were still falling, and mortgage credit remained tight. Households’ real disposable income rose only modestly through late 2011. In addition, federal spending contracted toward year-end, and the restraining effects of fiscal consolidation appeared likely to be greater this year than anticipated at the time of the November projections. Participants also read the information on economic activity abroad, particularly in Europe, as pointing to weaker demand for U.S. exports in coming quarters than had seemed likely when they prepared their forecasts in November.
Full minutes: