The Federal Open Market Committee (FOMC) minutes of the Sept 21st 2010 meeting are worth reading. Below are some bullet points:
- roughly $28 billion principal payments were reinvested into Treasuries with maturities between 2-10 years. Mostly nominal, but a little into TIPS
- continuing to operate the reverse repo and term deposit facilities on a light scale for ‘down-the-road’ withdrawal of accommodation
- economy expanding at a weakening pace – but data is inconsistent
- housing awful
- labor not much better
- deflation not likely – but inflation well below acceptable levels per FOMC’s dual mandate
- unit labor costs and hour compensation very very low
- lots of mortgage refis .. but some homeowners cannot get a refi due to negative equity
- a double dip is not likely – but slow growth is likely
- if economic growth remains too slow, unemployment remains too high, or inflation levels too low, more accommodation is coming. seems like all of these are likely, thus more accommodation is coming!
- most likely form of more accommodation –> longer-term Treasury purchases (thinking 2-10s) and potential statement of inflation target
- Hoenig has gone off the deep end. He actually wants to raise rates and shrink the balance sheet. Speechless.