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Sunday, February 22, 2009

Federal Reserve Minutes from 2/18

Policymakers project high unemployment through 2011, vow aggressive action:

Federal Open Market Committee Minutes
- January 2009

Scroll about half way down to start reading the staff reviews, staff projections, meeting participants views and policy action to get sense of how they are all looking at our economic recovery - it is not at all comforting to realize that those supposed to be "in the know" seem relatively unsure about most things and between the lines it appears to me that they themselves are relatively uncertain that the stimulus will really be a stimulus at all:

An excerpt: "Participants were, however, quite uncertain about the outlook. All but a few saw the risks to growth as tilted to the downside; in light of financial stresses and tight credit conditions, they saw a significant risk that the economic recovery would be both delayed and initially quite weak. In particular, most participants saw the renewed deterioration in the banking sector's financial condition as posing a significant downside risk to the economic outlook absent additional initiatives to stabilize the banking system. . ."

Another excerpt: "Participants indicated they had been surprised by the speed and magnitude of the slowdown in economic growth abroad and the resulting drop in demand for U.S. exports. . ."

Another excerpt - something we all know to be true:

"Staff Review of the Economic and Financial Situation
The information reviewed at the meeting indicated a continued sharp contraction in real economic activity. Sales and starts of new homes remained on a steep downward trend, consumer spending continued its significant decline, the deterioration in business equipment investment intensified, and foreign demand weakened. Conditions in the labor market continued to deteriorate rapidly in December: Private payroll employment fell sharply, and the unemployment rate rose. Industrial production dropped more severely than in earlier months. Headline consumer prices fell in November and December, reflecting declines in consumer energy prices; core consumer prices were about flat in those months. While conditions in some financial markets showed limited improvement, extraordinary financial stresses remained apparent and credit conditions became still tighter for households and businesses. . . ."

Summary of Economic Projections
- January 2009

An excerpt:

"Participants anticipated that labor market conditions would deteriorate substantially further over the course of this year, and nearly all expected that unemployment would still be well above its longer-run sustainable rate at the end of 2011. Participants' projections for the average unemployment rate during the fourth quarter of 2009 had a central tendency of 8.5 to 8.8 percent (emphasis added), markedly higher than last December's actual unemployment rate of 7.2 percent the latest available figure at the time of the January FOMC meeting."

Another excerpt:
"In addition, some participants noted that a substantial degree of uncertainty was associated with gauging the stimulative effects of nontraditional monetary policy tools that are now being employed given that conventional policy easing was limited by the zero lower bound on nominal interest rates. Others referred to uncertainties regarding the size, composition, and effectiveness of the fiscal stimulus package--which was still under consideration at the time of the FOMC meeting--and of further measures to stabilize the banking system. . ."

HOMEWORK: Are you prepping yet????

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