FOMC Minutes Lean Hawkish, But Not New

The minutes to the Federal Reserve's Dec. 12 FOMC meeting read more hawkish than dovish, with the Fed emphasizing upside risks to inflation over the downside risks to economic growth.

Of particular importance were the Fed's remarks on the housing market, which were much more benign than was implied by the Dec. 12 statement wherein the Fed added the word "substantial" to describe the cooling of the housing market.

On the other side of the coin, one FOMC member wanted the Fed to shift from its tightening bias to a neutral directive, although the importance of this revelation is reduced by changes to the FOMC that will take place at the Jan. 31 FOMC meeting, when the composition of the Fed changes as a result of the Fed's annual rotation of Reserve Bank presidents. Also dovish was the Fed's downgrading of its assessment of the economic outlook.

The FOMC minutes might be best summarized by these remarks contained in the minutes, which described both the increased growth concern and the Fed's lingering concern about inflation risks:

"Several members judged that the subdued tone of some incoming indicators meant that the downside risks to economic growth in the near term had increased a little and become a bit more broadly based than previously thought. Nonetheless, all members agreed that the risk that inflation would fail to moderate as desired remained the predominant concern."

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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