Investors and the press love to read the tea leaves of the FOMC meeting minutes. Most in the press believe July 31st Federal Reserve Open Market Committee meeting minutes confirm quantitative easing, the $85 billion a month in mortgage backed securities and asset purchases, will be reduced starting in September. We don't know that answer but we can guess. From the minutes:
Wall Street is on edge, placing bets when their crack cocaine, quantitative easing will be removed. The Federal Reserve said they would have to taper quantitative easing if inflation went past their target rate.
The Federal Reserve FOMC released their updated economic projections and frankly they are weird. GDP estimates were lowered yet the official unemployment rate projections were also lowered. The rule of economic law is lower economic growth means less jobs and hires so how one can have subdued GDP with better unemployment figures is none too clear.
Quantitative easing is the buying of various securities to increase the money supply. In a round about way, this increases liquidity at banks, stuffs them with capital, which theoretically banks are then supposed to turn around and increase lending to regular people.
The amount of text written on FOMC meeting minutes is astounding. This is a conversation from a meeting almost a month old where no action was taken. In a game of Where's Waldo, people pour over the words, hunting for even a trace of more quantitative easing. This time they found it and pounced.
Here is the latest FOMC meeting minutes phrase that has quantitative easing addicts salivating and foaming at the mouth.
Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.
The problem, with this is taking comments out of context from meeting minutes. Some economic indicators improved after July 31st for one and the Fed is concerned about deterioration. Right after the above sentence is this:
QE3 has been predicted by many as the next round of quantitative easing. The Federal Reserve's latest FOMC meeting minutes suggest no more quantitative easing, beyond the competition of QE2, according to Bloomberg:
Federal Reserve officials signaled they’re unlikely to expand a $600-billion bond purchase plan as the recovery picks up steam and the threat that inflation will fall too low begins to wane.
The economy is on a “firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said in a statement yesterday after a one-day meeting in Washington. While commodity prices have “risen significantly,” inflation expectations have “remained stable.”
Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.
The Federal Reserve has a dissident in their midst who is about to get FOMC voting rights. Philadelphia Federal Reserve President Charles I. Plosser gave one wallop of a speech making it very clear he disagrees with the Federal Reserve bailing out the Banksters and the Housing Market. He also disagrees with intervention in assets as well as giving the illusion the Federal Reserve can really do something about unemployment. From the speech:
I have suggested that the System Open Market Account (SOMA) portfolio, which is used to implement monetary policy in the U.S., be restricted to short-term U.S. government securities. Before the financial crisis, U.S. Treasury securities constituted 91 percent of the Fed’s balance-sheet assets. Given that the Fed now holds some $1.1 trillion in agency mortgage-backed securities (MBS) and agency debt securities intended to support the housing sector, that number is 42 percent today. The sheer magnitude of the mortgage-related securities demonstrates the degree to which monetary policy has engaged in supporting a particular sector of the economy through its allocation of credit. It also points to the potential challenges the Fed faces as we remove our direct support of the housing sector.
The long awaited day is here. In the spirit of QE2, aka quantitative easing part II, the Federal Reserve has announced $600 billion in U.S. Treasury purchases:
The Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
Also, the thing every one knows, they will keep the Federal Funds Rate at effective zero and sure doesn't look like they will raise it anytime soon:
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
Kansas City Fed President Thomas M. Hoenig voted against this.
But wait! There's more. From the New York Federal Reserve press release is appears they are actually buying up about $900 billion U.S. Treasuries de facto.
There was a couple news stories recently that you may have missed because they have no immediate effect on the markets. However, they are significant milestones.
(Bloomberg) -- The Federal Reserve completed its $300 billion Treasury purchase program today amid signs the seven-month buying spree helped stabilize the housing market and limited increases in borrowing costs.
Yields on the benchmark 10-year note, which help determine rates on everything from mortgages to corporate bonds, never rose above 4 percent after the central bank began acquiring the debt. They are less than half a percentage point higher than the day before the program was announced on March 18, even though the U.S. sold a record $1.25 trillion in notes and bonds, more than double the amount in the year-earlier period...
Philadelphia Federal Reserve President Charles I. Plosser gave one wallop of a speech making it very clear he disagrees with the Federal Reserve bailing out the Banksters and the Housing Market. He also disagrees with intervention in assets as well as giving the illusion the Federal Reserve can really do something about unemployment. From
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