FOMC Minutes Leaked Early

While the FOMC Minutes have not yet been officially released by the Fed, it appears someone has broken the embargo. Here are the headlines.

  • A FEW FOMC MEMBERS BELIEVED OUTLOOK MAY WARRANT MORE EASING
  • FED OFFICIALS AGREED TARGETING NOMINAL GDP NOT ADVISABLE
  • FED OFFICIALS SAW `LIMITED' IMPACT OF MF GLOBAL BANKRUPTCY
  • A FEW FOMC MEMBERS FAVORED TIME PERIOD FOR INTEREST-RATE PLEDGE
  • A FEW FOMC MEMBERS BELIEVED OUTLOOK MAY WARRANT MORE EASING
  • A FEW FOMC MEMBERS FAVORED TIME PERIOD FOR INTEREST-RATE PLEDGE
  • FED OFFICIALS BACKED IDEA OF OFFERING MORE DATA ON RATE PATH
  • US RECOVERY SUBJECT TO SIGNIFICANT DOWNSIDE RISKS

In other news - nothing substantially different from the statement or the conference that followed.

The market reaction was immediately Pro-QE:

Some more on NGDP targeting:

The Committee also considered policy strategies that would involve the use of an intermediate target such as nominal gross domestic product (GDP) or the price level. The staff presented model simulations that suggested that nominal GDP targeting could, in principle, be helpful in promoting a stronger economic recovery  in a context of longer-run price stability. Other simulations suggested that the single-minded pursuit of a price-level target would not be very effective in fostering fostering maximum sustainable employment; it was noted, however, that price-level targeting where  the central bank maintained flexibility to stabilize economic activity over the short term could generate economic outcomes that would be more consistent with the dual mandate. More broadly, a number of participants expressed concern that switching to a new policy framework could  heighten uncertainty about future monetary policy, risk unmooring longer-term inflation expectations, or fail to address risks to financial stability. Several participants observed that the efficacy of nominal GDP targeting depended crucially on some strong assumptions, including the premise that the Committee could make a credible commitment to maintaining such a strategy over a long time horizon and that policymakers would continue adhering to that strategy even in the face of a significant increase in inflation. In addition, some participants noted that such an approach would involve substantial operational hurdles, including the difficulty of specifying an appropriate target level. In light of the significant challenges associated  with the adoption of such frameworks, participants agreed that it would not be advisable to make such a change under present circumstances.

...

It was noted that many central banks around the world pursue an explicit inflation objective, maintain flexibility to stabilize economic activity, and seek to communicate their forecasts and policy plans as clearly as possible. Many participants pointed to the merits of specifying an explicit longer-run inflation goal, but it was noted that such a step could be misperceived as placing greater weight on price stability than on maximum employment; consequently, some suggested that a numerical inflation goal would need to be set forth within a context that clearly underscored the Committee’s commitment to fostering both parts of its dual mandate. More broadly, a majority of participants  agreed that it could be beneficial to formulate and publish a statement that would elucidate the Committee’s policy approach, and  participants generally expressed interest in providing additional information to the public about the likely future path of the target federal funds rate.

Some comments on Europe:

Foreign financial markets remained volatile over the intermeeting period, and funding pressures for many European financial institutions continued.  After falling sharply in August and early September, foreign equity prices rose, with stocks in the euro area outperforming those in most other economies. For most of the period, market participants seemed heartened by European leaders’ efforts to address the fiscal and financial challenges present in the euro area, although the news late in the period on a possible Greek referendum sent stock prices down sharply. Benchmark sovereign yields increased over the period, but spreads of yields on 10-year sovereign bonds of the most vulnerable euroarea countries over yields on German Bunds were little changed on net. Some reversal of safe-haven flows in October reportedly led the dollar to give back most of the gains it registered in late September, leaving the broad nominal foreign exchange value of the dollar little changed, on balance, relative to its level at the time of the September FOMC meeting. At the end of October, Japanese officials intervened in foreign exchange markets through sales of yen.

On global FX warfare:

A number of central banks announced additional measures to stimulate economic activity. The Bank of England and Bank of Japan each announced  expansions of their respective asset purchase programs, and the ECB announced that it would conduct two refinancing operations with maturities of slightly more than a year and launched a new covered bond purchase program. The central banks of Brazil, Indonesia, and Israel lowered their policy rates, citing a potential slowdown in global growth.

And on MF Global:

Participants also discussed the events surrounding the bankruptcy filing of MF Global Holdings Ltd. and saw the financial stability implications of this development as limited to date

Below are the full minutes.