FOMC Minutes Outline Quantitative Easing Circumstances

The most recent minutes from the FOMC are out and this shows us a bit more about how quantitative easing may work. The consensus is that monetary stimulus is appropriate if growth becomes too slow.  The good news is that further easing (quantitative easing that is) appears to be necessary only if the economic outlook worsens from here.

The current stimulus talks also focus on long-term Treasury note and bond purchases.  Another key issue is of course the inflation target, and the FOMC does want to affect inflation.  It actually believes that core inflation will slow in 2011 and the minutes show a concern that inflation is short of levels for maximum employment and stable prices.

Treasuries were purchased: “The Desk conducted 12 such operations over the intermeeting period and purchased about $28 billion of Treasury securities, with maturities concentrated in the 2- to 10-year sector of the nominal Treasury curve…”

The FOMC is also watching our economic partners overseas.  The common belief is that the worst of the E.U. market stress has been broadly contained.

A continued concern is on on output and employment remaining that growth there will be slow for quite some time.  The big question if whether or not quantitative easing boils down to whether or not Uncle Sam can live within the confines of The New Normal.  The reason for that interpretation is because the FOMC said it is unlikely that the economy will re-enter a recession.  the target is moderate growth in 2011 and a further pick-up in growth in 2012.

Here are the FULL FOMC MINUTES from the September 21 meeting.

JON C.OGG