FOMC Minutes and Economic Projections: Dissent in Both Directions; Confused?

Wednesday, July 10, 2013
Following is a snip from the June 18-19, 2013 Minutes of the Federal Open Market Committee, released today. Highlighting is mine.
In their discussion of monetary policy for the period ahead, all members but one judged that the outlook for economic activity and inflation warranted the continuation of the Committee's current highly accommodative stance of monetary policy in order to foster a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

In the view of one member [Esther L. George], the improvement in the outlook for the labor market warranted a more deliberate statement from the Committee that asset purchases would be reduced in the very near future.

At the conclusion of its discussion, the Committee decided to continue adding policy accommodation by purchasing additional MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month and to maintain its existing reinvestment policies. In addition, the Committee reaffirmed its intention to keep the target federal funds rate at 0 to 1/4 percent and retained its forward guidance that it anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

Regarding the outlook for policy, members agreed that monetary policy in coming quarters would depend on the evolution of the economic outlook and progress toward the Committee's longer-run objectives of maximum employment and inflation of 2 percent. While recognizing the improvement in a number of indicators of economic activity and labor market conditions since the fall, many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases.

Some added that they would, as well, need to see more evidence that the projected acceleration in economic activity would occur, before reducing the pace of asset purchases. For one member [James Bullard], such a decision would also depend importantly on evidence that inflation was moving back toward the Committee's 2 percent objective; that member urged the Committee to modify its postmeeting statement to say explicitly that the Committee will act to move inflation back toward its goal.

A couple of other members also worried that the downside risks to inflation had increased, with one of them suggesting that the statement more explicitly reflect this increased risk.

However, several members judged that a reduction in asset purchases would likely soon be warranted, in light of the cumulative decline in unemployment since the September meeting and ongoing increases in private payrolls, which had increased their confidence in the outlook for sustained improvement in labor market conditions. Two of these members also indicated that the Committee should begin curtailing its purchases relatively soon in order to prevent the potential negative consequences of the program from exceeding its anticipated benefits.

Another member pointed out that if the program were ended because of concerns about such consequences, the Committee would need to explore other options for providing appropriate monetary accommodation. Many members indicated that decisions about the pace and composition of asset purchases were distinct from decisions about the appropriate level of the federal funds rate, which would continue to be guided by the thresholds in the Committee's statement. In general, members continued to anticipate that maintaining the current exceptionally low level of the federal funds rate was likely to remain appropriate for a considerable period after asset purchases are concluded.
Voting against this action: James Bullard and Esther L. George.

Mr. Bullard dissented because he believed that, in light of recent low readings on inflation, the Committee should signal more strongly its willingness to defend its goal of 2 percent inflation. He pointed out that inflation had trended down since the beginning of 2012 and was now well below target. Going forward, he viewed it as particularly important for the Committee to monitor price developments closely and to adapt its policy in response to incoming economic information.

Ms. George dissented because she viewed the ongoing improvement in labor market conditions and in the outlook as warranting a deliberate statement from the Committee at this meeting that the pace of its asset purchases would be reduced in the very near future. She continued to have concerns about maintaining aggressive monetary stimulus in the face of a growing economy and pointed to the potential for financial imbalances to emerge as a result of the high level of monetary accommodation.
Economic Projections

Here are a few snips from the related Summary of Economic Projections.
Overall, FOMC participants projected that, under appropriate monetary policy, the pace of economic recovery would gradually pick up over the 2013-15 period, and inflation would move up from recent very low readings but remain subdued.

Most participants judged that highly accommodative monetary policy was likely to be warranted over the next few years to support continued progress toward maximum employment and a gradual return toward 2 percent inflation. Moreover, all participants but one judged that it would be appropriate to continue purchasing both agency mortgage-backed securities (MBS) and longer-term Treasury securities at least until later this year.

The Outlook for Economic Activity

The central tendency of participants' projections for real GDP growth was 2.3 to 2.6 percent for 2013, 3.0 to 3.5 percent for 2014, and 2.9 to 3.6 percent for 2015. Most participants noted that their projections were little changed since March, with the downward revisions to growth in 2013 reflecting the somewhat slower-than-anticipated growth in the first half. The central tendency for the longer-run rate of growth of real GDP was 2.3 to 2.5 percent, unchanged from March.

All participants saw the appropriate target for the federal funds rate at the end of 2015 as still well below their assessments of its expected longer-run value. Estimates of the longer-run target federal funds rate ranged from 3-1/4 to 4-1/2 percent, reflecting the Committee's inflation objective of 2 percent and participants' individual judgments about the appropriate longer-run level of the real federal funds rate in the absence of further shocks to the economy.

Participants also described their views regarding the appropriate path of the Federal Reserve's balance sheet. Given their respective economic outlooks, all participants but one judged that it would be appropriate to continue purchasing both agency MBS and longer-term Treasury securities. About half of these participants indicated that it likely would be appropriate to end asset purchases late this year. Many other participants anticipated that it likely would be appropriate to continue purchases into 2014. Several participants emphasized that the asset purchase program was effective in supporting the economic expansion, that the benefits continued to exceed the costs, or that continuing purchases would be necessary to achieve a substantial improvement in the outlook for the labor market. A few participants, however, indicated that the Committee could best foster its dual objectives and limit the potential costs of the program by slowing, or stopping, its purchases at the June meeting.


Participants anticipated a gradual decline in the unemployment rate over the forecast period; a large majority projected that the unemployment rate would not reach their estimates of its longer-run level before 2016. The central tendencies of participants' forecasts for the unemployment rate were 7.2 to 7.3 percent at the end of 2013, 6.5 to 6.8 percent at the end of 2014, and 5.8 to 6.2 percent at the end of 2015.

The Outlook for Inflation

All participants marked down their projections for both PCE and core PCE inflation in 2013, reflecting the low readings on inflation so far this year. Participants generally judged that the recent slowing in inflation partly reflected transitory factors, and their projections for inflation under appropriate monetary policy over the period 2014-15 were only a little lower than in March. Participants projected that both headline and core inflation would move up but remain subdued, with nearly all projecting that inflation would be equal to, or somewhat below, the FOMC's longer-run objective of 2 percent in each year.
This is all meaningless of course, but at least you know what they are thinking.

I surmise the consensus opinion was arrived at by holding their fingers in the air, noting which way the wind was blowing, then predicting the wind direction will not change much.


Only one member had enough common sense to want to end QE now, whereas (some, half, many, most, a few, etc.) seem to be damn confused as to what to say and how to say it.

Zero Hedge noted Even The Experts Throw Up All Over The Fed Minutes
GMP's Adrian Miller with the best roundup of the sheer indecipherable gibberish just excreted by the Fed:
  • "We are not sure how you can go from ‘many’ needing to see labor gains before tapering begins to half seeing bond buying ending by year end. At the same time, ‘many’ other Fed officials saw bond buying into 2014”
  • "We are pretty good at math, but we are having trouble adding up the ‘many,’ ‘several’ and ‘about half’ to equal 100%
  • FOMC members appear to have ‘‘decided to cover every possible scenario," and "left us with no clear picture as to what the group is thinking”
If you are confused about what the FOMC participants said or meant, it's probably because they do not know either.

Mike "Mish" Shedlock