As I said earlier today, given that most in the markets expect the Fed to stop its interest rate cuts, very little guidance will be sought from the minutes in terms of prospective interest rate changes, rendering the minutes less useful than usual, except for any comments on what else the Fed might be considering -- the unorthodox strategies to combat the credit crisis.
The paying of interest on reserves is one of these topics, but it is already known that Ben Bernanke has asked Congress to accelerate the timetable on when the Fed can begin paying interest on reserves. (Bernanke requested that the authorization be moved from 2011 to the present.)
Here is the key passage that many will home in on with respect to the near-term outlook on Fed policy:
The risks to growth were now thought to be more closely balanced by the risks to inflation. Accordingly, the Committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth. Given these circumstances, future policy adjustments would depend on the extent to whicheconomic and financial developments affected the medium-term outlook for growth and inflation. In that regard, several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook.
These comments do not surprise, as it has become common knowledge that the Fed would rather stand pat at present. This view was reinforced earlier by Fed Governor Kevin Warsh (see my
note from earlier this afternoon).
Absent from the minutes (as usual) is any discussion of any unorthodox policy prescriptions that the Fed might be contemplating, save for a mentioning of the Fed's hope of paying interest on bank reserves immediately rather than beginning in 2011, the date that Congress has authorized such.
Within the FOMC minutes are new forecasts on the economic outlook, with the Fed updating its January forecasts. The forecasts are interesting only to the extent that they tell us about what is behind the Fed's policy decisions; the Fed's track record on forecasting growth has historically been mediocre at best.
For example, in October the Fed projected GDP growing somewhere between 1.8% and 2.5%. By January the forecast was lowered to 1.3% to 2.0%. The April 30 view was for growth of 0.3% to 1.2%.
For the unemployment rate, the Fed's forecast was revised from the range of 4.8% to 4.9% seen in October, and the 5.2% to 5.3% range seen in January, to the current forecasted range of 5.5% to 5.7%.
For the PCE (personal consumption expenditures) deflator, the Fed's forecast has moved from 1.8% to2.1% in October, to 2.1% to 2.4% in January, to 3.1% to 3.4% in April, a big miss. For core PCE prices, the Fed now projects a range of 2.2% to 2.4%, up from 2.0% to 2.2% in January, and 1.7% to 1.9% in October.
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 revised investment classic,
The Money Market
, first published in 1978 by Marcia Stigum, and
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;
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