FOMC March 20 Minutes: No Urgency to Rein in QE3

April 10, 2013

FOMC minutes were released at 13:00 GMT, five hours sooner than planned originally.  My take-away from this 24-page document is that scattered calls by FOMC individuals to cut back on the size of monthly asset purchases or even end such altogether before end-2013 overstate the likelihood that policy will become less accommodative so soon.

  1. The Federal Reserve staff revised projected U.S. economic growth in the near-term downward a bit because of a tighter fiscal policy.
  2. Medium-term projected growth was not raised in spite of a favorable wealth effect. 
  3. Dollar appreciation will suppress inflation and limit the absorption rate of unused productive resources.  The FOMC met on March 19-20 before the Bank of Japan exceeded expectations with its powerful stimulus.  The dollar is stronger against the yen now than on March 20.
  4. Growth risks continue to be skewed to the downside.
  5. The Fed’s continued discussion the costs and benefits tradeoff of quantitative easing produced ambiguous or at least ambivalent results. “Overall, most meeting participants thought the risks and costs of additional asset purchases remained manageable, but also that continued close attention to these issues was warranted…..  A couple of these participants noted that if progress toward the Committee’s economic goals were not maintained, the pace of purchases might appropriately be increased.”
  6. Any forthcoming decision to slow the pace of stimulus will be data-driven, and unemployment and job creation is critical in this regard:  “Many participants expressed the view that continued solid improvement in the outlook for the labor market could prompt the Committee to slow the pace of purchases beginning at some point over the next several meetings.”  The FOMC met before knowing the discouraging subsequent news from the labor front.  An 88K rise in nonfarm payroll jobs last month was the least since June 2012, and the 3-month 168K pace of increase was the smallest since August-October. 

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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