Fed Minutes: “We Lied”

Chrysler Building

Oh hoh hoh, what do we have in here?

Remember this from the Statement?

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

Yeah, $1 trillion, roughly, annualized.  Except that….

While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased.Various members stressed the importance of a continuing assessment of labor market developments and reviews of the program’s efficacy and costs at upcoming FOMC meetings. In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases.Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.

But but but….. everyone took the statement as meaning that 2015 was the minimum target before policy accomodation would end — that is, Bernanke would monetize at least $2 trillion more, and probably more like $3 trillion.

Not so fast Kemosabe!

It appears that The FOMC sees what I and a few others have been talking about for a couple of years now — that these “asset purchases” are not particularly effective (other than in boosting stock prices) and the larger the imbalance that The Fed builds into the economy and the markets the more difficult it will be to withdraw that policy, becauseexponents are a bitch.

By the way, these aren’t actually “minutes.”  We don’t know who said what, precisely.  Indeed, we don’t even know if the alleged “minutes” reflect what was really said at all, and we have seen when the actual minutes are released (manyyears later) that in point of fact some members of the FOMC have said things that aren’t exactly coherent with the so-called “minutes” released a month after the meeting.

But in this case memory lane is short enough for people to pay attention, since the FOMC decision came just a few weeks ago, as did the presser, and both the statement and Bernanke led the market to believe that they would simply stand on the gas — and the FOMC was not only behind him on this with the exception of his one dissenter, they saw this as appropriate through 2015 or maybe even later.


Now add to this the debt ceiling and suddenly things get very interesting, and the bond market appears to have figured that out rather….. “rapidly.”

This could, in turn, make the interest expense for the Federal Government rather….. “interesting” if they don’t cut the crap.

Heh Boehner, Pelosi, Reid, McConnell and Obama:

That’s the Chrysler Building you feel up your butt.  I hope you enjoy it.


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