Tuesday, April 3, 2012

It's The Economy Stupid: Reading the Fed Tea Leaves

The Fed released the minutes from their March FOMC meeting.  As usual, no one actually understands what the minutes mean.  They are written in English, just not a version used by normal human beings.



Apparently the FOMC Saw No Need for New Easing Unless Growth Slips, Minutes Show (Maybe)


The Federal Reserve is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target.  A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below 2 percent, according to minutes of their March 13 meeting released today. 


ITERPRETATION:  “A couple” is not a ringing endorsement. No QE3 unless the economy goes in the toilet.  Again.


The central bank last month affirmed its plan, first announced in January, to hold interest rates near zero through late 2014 as the economy may fail to grow fast enough to continue bringing down the unemployment rate.


The minutes of the FOMC meeting show decreased urgency to add monetary stimulus. At their January meeting minutes, a few members said that current economic conditions “could warrant the initiation of additional securities purchases before long.” In March meeting minutes released today, no sentiment was expressed for additional easing without a deterioration in conditions.


Fed policy makers also discussed the conditions under which they’d alter their plan to hold rates near zero through at least late 2014. That pledge is conditional on economic conditions

“and members concurred that the date given in the statement would be subject to revision in response to significant changes in the economic outlook.”


“A number” of policy makers did not see that threshold being met and said that “while recent employment data had been encouraging” there was a “nonnegligible risk that improvements

in employment could diminish as the year progressed.”


INTERPRETATION: “A number”, “nonnegligible”? WTF! They aren’t all agreeing on anything, which means they are likely to do nothing.


In their March discussion FOMC policy makers did not see the economy growing so strongly that they would have to raise their forecasts in coming years.  “Most participants did not interpret the recent economic and financial information as pointing to a material revision to the outlook for 2013 and 2014,” the minutes said.


FOMC participants also discussed additional steps they could take to better explain to the public how changes in the economic outlook affect monetary policy decisions, such as what

qualitative or quantitative data would prompt which actions, according to the minutes.


“Several participants suggested that it could be helpful to discuss at a future meeting some alternative economic scenarios and the monetary policy responses that might be seen

as appropriate under each one,” according to the minutes.


INTERPRETATION:  They don’t have the votes to go decisively one way or the other. And they are going to stop speaking ancient Mesopotamian and start speaking ancient Aramaic.




John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

Ph:  225-342-0013

Fx:  225-342-9721

Email:  jbroussard@treasusry.state.la.us

Street Address:

445 North Blvd, 7th Floor

Baton Rouge, LA 70802

Mailing Address:

P.O. Box 44154 Capitol Station

Baton Rouge, LA 70804-4154

Physical Location:

One City Plaza, 7th Floor

Corner of North Blvd & 4th Street

Exit 1B I-110 Convention Street,

Turn Left to get to North Blvd,

Turn Right on North Blvd


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