The FOMC Minutes have been released. This is the first statement I read....
"Although participants considered it unlikely that the economy would reenter a recession, many expressed concern that output growth, and the associated progress in reducing the level of unemployment, could be slow for some time. Participants noted a number of factors that were restraining growth, including low levels of household and business confidence, heightened risk aversion, and the still weak financial conditions of some households and small firms."
Sounds like more qualitative than quantitative doesn't it?....looking deeper it seems like the Fed is telling us this is a crisis of confidence and if we all get on board the recovery train, TOGETHER, it will start moving. Unfortunately we all can't board the recovery train because entry level jobs are being given to experienced workers and non-skilled laborers are being left out in the cold (and pulling down price levels in the process)
I haven't read the Minutes in their entirety yet because I am not capable of absorbing nine pages of technical content in a matter of seconds, but Reuters supplied some bullet points.
Here they are....
RTRS-FED POLICYMAKERS IN SEPTEMBER FELT FURTHER MONETARY EASING COULD BE APPROPRIATE BEFORE LONG -- MINUTES
RTRS-FED - MANY NOTED WOULD BE APPROPRIATE TO EASE IF GROWTH TOO SLOW TO REDUCE JOBLESS RATE OR IF INFLATION CONTINUED TO FALL
RTRS-FED MEMBERS MULLED POSSIBLE APPROACHES TO EASING; FOCUS WAS ON BUYING TREASURIES, STEPS TO INFLUENCE INFLATION EXPECTATIONS
RTRS-FED - INCREASE IN INFLATION EXPECTATIONS COULD LOWER SHORT-TERM REAL INTEREST RATES, STIMULATING ECONOMY
RTRS-FED - STRATEGIES TO RAISE EXPECTATIONS INCLUDE OFFERING MORE DETAIL ON INFLATION RATES DEEMED CONSISTENT WITH MANDATE
RTRS-FED - STRATEGIES ALSO INCLUDE TARGETING PRICE LEVEL RATHER THAN INFLATION RATE, TARGETING PATH FOR GDP
RTRS-FED - PARTICIPANTS FELT ANY ACCOMMODATION MOST EFFECTIVE IF ENACTED IN FRAMEWORK CLEARLY COMMUNICATED TO PUBLIC
RTRS-FED - MEMBERS UNSATISFIED WITH RECENT PROGRESS TOWARD MEETING PRICE STABILITY, FULL EMPLOYMENT MANDATE
RTRS-FED - MANY SAW EVIDENCE JOBLESS RATE CONSIDERABLY ABOVE LEVELS THAT COULD BE EXPLAINED BY STRUCTURAL FACTORS ALONE
RTRS-FED - PARTICIPANTS CONSIDERED IT UNLIKELY ECONOMY WOULD REENTER A RECESSION
RTRS-FED - A NUMBER FELT CURRENT SLUGGISH PACE OF JOBS GROWTH INSUFFICIENT TO LOWER JOBLESS RATE AT SATISFACTORY PACE
First observations...
- There is clearly no change in the market's view that the FOMC is already actively planning another Quantitative Easing program. I don't have to read the minutes to tell you that....just look at the bond market, it isn't selling off.
- The general idea of QE is to lower benchmark interest rates (risk free returns) to the point where the extremely expensive opportunity cost of saving would eventually lead investors into higher yielding, riskier assets. Negative nominal rates should do the trick...
- The Fed says they need to openly communicate their policy strategy, implying we shouldn't be expecting any trickery or "shock and awe". In that sense, the FOMC is focused on "rate sheet influential" Treasuries
- The Fed still doesn't see a double-dip...but they do expect our recovery to be a very long, slow, choppy process.
Market Reaction...
Bond yields moved slightly higher as the news flashed but the market's reaction was in no way indicative of an uptick in panicky selloff sentiment. The lack of a positive reaction implies bond traders heard nothing new and instead chose to focus their tactical trading strategies on TSY debt issuance to come (10s tomorrow. 30s on Thursday).
2s/10s UNCH at 203bps wide. 10s at 2.395%. December FNCL 3.5s at 101-05. December FNCL 4.0s at 103-10.
I'm gonna read a little deeper into the Minutes now...
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