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Tuesday, October 12, 2010

FOMC Minutes from Today

Today's FOMC minutes reflected the FOMC's economic outlook.    I want to take the time to go over some of the minutes.
In the economic forecast prepared for the September FOMC meeting, the staff lowered its projection for the increase in real economic activity over the second half of 2010.
Well there is a shocker, real economic activity projections were lowered in the 2nd half of 2010.  Hmm, I wonder if this is due to the fact that real unemployment (U6) actually did increase and businesses are afraid to make a move prior to elections because they don't know what to expect from the administration on taxes, healthcare and paperwork.
The staff also reduced slightly its forecast of growth next year but continued to anticipate a moderate strengthening of the expansion in 2011 as well as a further pickup in economic growth in 2012.
It would make sense that into the 1st quarter of 2011 the economy would remain sluggish as uncertainty reigns.  With the pickup in economic growth for latter 2011 and 2012 that they talk about, I would have to ask where this growth will come from.  I ask as we are facing further challenges in foreclosures that will create lawsuits and will drag on the financial industry.  More layoffs in front of the financial industry as well.
The softer tone of incoming economic data suggested that the underlying level of demand was weaker than projected at the time of the August meeting. Moreover, the outlook for foreign economic activity also appeared a bit weaker.
We definitely see the weakness in the economy here and overseas for the most part (Germany's GDP being the bright spot).
In the medium term, the recovery in economic activity was expected to receive support from accommodative monetary policy, further improvements in financial conditions, and greater household and business confidence. Over the forecast period, the increase in real GDP was projected to be sufficient to slowly reduce economic slack, although resource slack was anticipated to still remain elevated at the end of 2012.
Overall inflation was projected to remain subdued, with the staff's forecasts for headline and core inflation little changed from the previous projection.
Ok here is where we have another problem, inflation isn't subdued, nor are we in deflation.  I'll give you housing (yeah no kidding), but consumers are experiencing inflation in gas/oil prices, energy prices, corn, wheat (causing food prices to rise, stealth inflation really picking up).  If anything we are in an inflationary environment like I have pointed out in prior posts.  These are things that impact consumers.  consumer spending my have tipped up slightly, but what season are we in again?
In light of the considerable uncertainty about the current trajectory for the economy, some members saw merit in accumulating further information before reaching a decision about providing additional monetary stimulus. In addition, members wanted to consider further the most effective framework for calibrating and communicating any additional steps to provide such stimulus. Several members noted that unless the pace of economic recovery strengthened or underlying inflation moved back toward a level consistent with the Committee's mandate, they would consider it appropriate to take action soon.
QE2 is going to happen,  The fed funds rate is already at zero (near zero) so QE2 which is been rumored from $1 Trillion to $7 Trillion is going to happen in November.   They want to wait until after the elections to do this and it is the only tool they really have left.  Another point is that no other government body is doing anything to help the economy, all are relying on the FED to pull us out of this.  Many have debated whether this will actually have enough to stimulate the economy.  Then you have to ask yourself how do we pay this back?  Things to think about.

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