Recovery & Unemployment Are FOMC Minutes Central Themes

Here is the lead sentence from the FOMC press release of the December 14, 2010 meeting minutes: "Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment."

Federal Reserve
Federal Reserve

The first paragraph also contains this gem: "Employers remain reluctant to add to payrolls. The housing sector continues to be depressed."

Once again: You could hear a similar summary—phrased in saltier language—at your neighborhood tavern.

Those voting for the policy statement do not see the specter of rising long-term inflation: "Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward."

The target range for the federal funds rate will remain at 0 to 1/4 percent, as expected.

The housing market, it seems, is still fairly dismal. This paragraph stands out:

"Activity in the housing market was still quite depressed. In October, starts of new single-family homes remained at the very low level that had prevailed since August. Moreover, the level of permit issuance, which is typically a near-term indicator of new homebuilding, continued to run below starts. The persistence of a large excess supply of existing homes on the market and tight credit conditions for construction appeared to constitute a significant restraint on new homebuilding. Demand for housing also remained very weak: Sales of new homes in October were at the lowest level in the 48-year history of the series. Purchases of existing homes edged lower in October; in part, the still-low level of sales likely reflected the payback from the earlier surge in sales associated with the homebuyer tax credit and also the moratoriums on sales of bank-owned properties. Measures of house prices declined recently, and households' concerns that home values might continue to fall, their pessimism about the outlook for employment and income, and the tight standards faced by many mortgage borrowers appeared to be weighing on demand. "

Also of note: ZeroHedge points to Goldman Sachs commentary on the minutes:

"Perhaps the best single sentence in this document is the one that immediately precedes the vote on the directive to the New York Fed for its intermeeting operations: 'With respect to the statement to be release following the meeting, members agreed that only small changes were necessary to reflect the modest improvement in the near-term economic outlook." In this regard, we remember expecting the committee to upgrade its view only modestly and finding that the upgrade was, if anything, a bit more cautious than we anticipated.'"

Finally, on the inflation picture, there is this:

"Regarding the outlook for inflation, participants generally anticipated that inflation would remain for some time below levels judged to be most consistent, over the longer run, with maximum employment and price stability. In particular, most participants expected that underlying measures of inflation would bottom out around current levels and then move gradually higher as the recovery progresses. A few participants pointed to the risk that the ongoing expansion of the Federal Reserve's balance sheet and the sustained low level of short-term interest rates could trigger undesirable increases in inflation expectations and so in actual inflation. To minimize such risks, it was noted that the Committee should continue its planning for the eventual exit from the current exceptionally accommodative stance of policy. Other participants noted that, with substantial resource slack persisting, underlying inflation might fall further below the levels that the Committee sees as consistent with its mandate. Nonetheless, several participants saw the risk of deflation as having receded somewhat over recent months."

So, there's a general consensus on low inflation moving forward, with "a few"—meaning more than just Hoenig?— seeing a risk that the current accommodative stance "could trigger undesirable increases in inflation expectations and so in actual inflation."

Look forward to the usual navel gazing about the language: The amusing attempt to handicap actual monetary policy shifts based on the poetic form of FOMC meeting minutes.

Thomas Hoenig voted against the policy statement. Hoenig's deficit hawk dissent is, as usual, thought provoking: "In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy."


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