FOMC Minutes Reveal Nothing New

Same members, same voters, same views, same tools:


Abridged version: "As Chuck Schumer ordered, we got to work."

Turns out the reason for QE3 was, get this, Europe...

Sentiment in financial markets improved notably during the intermeeting period. Participants indicated that recent decisions by the ECB helped ease investors’ anxiety about the near-term prospects for the euro. However, participants also observed that significant risks related to the euro-area banking and fiscal crisis remained, and that a number of important issues would have to be resolved in order to achieve further progress toward a comprehensive solution to the crisis.

... Not the US:

Participants noted that indicators of financial stress in the United States were not especially high and overall conditions in U.S. financial markets remained favorable. Longer-term interest rates were low and supportive of economic growth, while equity prices had risen. ... In the household sector, incoming data on retail sales were somewhat stronger than expected. A number of participants also observed that house prices were rising. It was noted that such increases, coupled with historically low mortgage rates, could lead to a stronger upturn in housing activity, although constraints on the capacity for loan origination and still-tight credit terms for some borrowers continued to weigh on mortgage lending.

But hey, there is a reason why Europe has pledged its vote for Obama.

The Fed once again confused cause and effect:

Business contacts in many parts of the country were reported to be highly uncertain about the outlook for the economy and for fiscal and regulatory policies. Although firms’ balance sheets were generally strong, these uncertainties had led them to be particularly cautious and to remain reluctant to hire or expand capacity.

Of course, the reason why everyone is uncertain is BECAUSE of the Fed's endless meddling in the market, the economy, and virtually every private sector. If price levels were actually allowed to clear, confidence would return overnight. Instead, the more the Fed intervenes, the more uncertainty there will be, the more Fed intervention, and so on until everything breaks.

In the meantime, the hawks were promptly silenced:

Some participants thought past purchases were useful because they were conducted during periods of market stress or heightened deflation risk and were less confident of the efficacy of additional purchases under present circumstances. A few expressed skepticism that additional policy accommodation could help spur an economy that they saw as held back by uncertainties and a range of structural issues. In discussing the costs and risks that such a program might entail, several participants reiterated their concern that additional purchases might complicate the Committee’s efforts to withdraw monetary policy accommodation when it eventually became appropriate to do so, raising the risk of undesirably high inflation in the future and potentially unmooring inflation expectations. One participant noted that an extended period of accommodation resulting from additional asset purchases could lead to excessive risktaking on the part of some investors and so undermine financial stability over time.

The highlight from the minutes:

A number of participants questioned the effectiveness of continuing to use a calendar date to provide forward guidance, noting that a change in the calendar date might be interpreted pessimistically as a downgrade of the Committee’s economic outlook rather than as conveying the Committee’s   determination to support the economic recovery. If the public interpreted the statement pessimistically, consumer and business confidence could fall rather than rise.


Many participants indicated a preference for replacing the calendar date with language describing the economic factors that the Committee would consider in deciding to raise its target for thefederal funds rate. Participants discussed the benefits of such an approach, including the  potential for enhanced effectiveness of policy through greater clarity regarding the Committee’s future behavior. That approach could also bolster the stimulus provided by the System’s holdings of longer-term securities. It was noted that forward guidance along these lines would allow market expectations regarding the federal funds rate to adjust automatically in response to incoming data on the economy.


However, reaching agreement on specific thresholds could be challenging given the diversity of participants’ views, and some were reluctant to specify explicit numerical thresholds out of concern that such thresholds would necessarily be too simple to fully capture the complexities of the economy and the policy process or could be incorrectly interpreted as triggers prompting an automatic policy response. In addition,  numerical thresholds could be confused with the Committee’s longer-term objectives, and so undermine the Committee’s credibility. At the conclusion of the discussion, most participants agreed that the use of numerical thresholds could be useful to provide more clarity about the conditionality of the forward guidance but thought that further work would be needed to address the related communications challenges.

They don't call it QEternity for nothing. Still it is very calming to know that nobody in the FOMC has any idea what to do in an open-ended regime, but sure know how to silence those economists whose DSGE models forecast "explosive inflation" should ZIRP continue indefinitely.

Full thing: