federal reserve

QE3 Addicts Scour FOMC Meeting Minutes Looking for Their Fix

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:

Don't Let the Big Fat Zero for January 2012 Industrial Production Fool You

The Federal Reserve's Industrial Production & Capacity Utilization report, G.17, shows zero change in industrial production for January 2012. The culprit was utilities and the Fed blames the weather. Warming temperatures in winter cause home energy production to drop beyond their typical output levels. The big fat industrial production zero hides some very promising changes.

Sweet Nothings from the Federal Reserve FOMC Statement

So much for Helicopter Ben swooping in and enacting more quantitative easing. The FOMC statement tells us nothing we don't already know. Nor does the Fed have any more magic bullets. The economy sucks, we have a jobs crisis and about the only thing new is a mid-2013 end date for keeping interest rates extraordinarily low:

The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

There were three dissenters, out of 10, on the decision to guarantee a low federal funds for a two year time period, preferring no defined time window.

What one can gleam from this is the Federal Reserve now believes this economic malaise will continue for two more years. We've known that but now it's official, the Fed is acknowledging the long, protracted economic disaster which is the new normal of America.

The good news is the Fed at least acknowledges our terrible economy, although their previous GDP, unemployment and growth projections were much happy talk.

No QE3 After All

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.”

The actual Federal Reserve FOMC press release said:

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.

Fed vs. Fed

The Federal Reserve has a dissident in their midst who is about to get FOMC voting rights. spyvsspy 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.