FOMC Minutes: Currency Manipulation & Duration Dissent

The minutes of the most recent FOMC meeting from November 2 and 3 showed that Fed governors were not exactly unanimous over all of the issues around quantitative easing or QE2.  Ultimately, those Fed members did agree that the benefits outweighed the risks and the vote came in favor by a 10 to 1 vote.

The $600 billion securities purchase program brings up additional concerns  over a second round of stimulus.  To add some intrigue to the mystery, the Fed also held a secret meeting back in mid-October regarding how it would communicate this round of quantitative easing to the public.  That separate meeting held in mid-October had a communications focus on how to best communicate the FOMC stimulus action-plan to the public and to the investor community.  One tool noted was occasional Ben Bernanke press briefings on what it was considering, but nothing was formally decided there.  Another focal point was to consider whether the FOMC needed to formally set an inflation target.

It was not unanimous in the scheduled and formal FOMC meeting that buying debt would have limited effect where it came to adding fuel to the economy.  There was even discussion over where on the interest rate curve should be targeted.  Here is the biggest issue and the one that historians will toy with depending upon where the cycle is… There was a disagreement over whether this action would kick-start inflation and whether it would cause artificial pressure on the already-weak US Dollar.

You probably guessed who was the hold-out vote.  Thomas Hoenig of the Kansas City Federal Reserve was the only one to formally dissent with a NO.

Another key issue is the dual mandate of price stability while simultaneously trying to maximize employment.  It can be no shock that the FOMC downgraded expectations of the 2010 and 2011 economic growth.  The call is for slower growth and having higher unemployment than it had forecast back in the summer.

Dissent over the impact and dissent over which measures to take, dissent over whether or not this would create a flame-thrower effect on prices and what it would do to an already weak currency.  That is called informal votes against policy if you have a single skeptical bone in your body.  As far voting for it anyhow as the best of only bad choices, that can’t sit well.

One formal dissent does not describe the reading and interpretation of some of the concerns here.  In some cases, it is like going home with a 2 at 2 just because you are lonely.

Calling your own government a currency manipulator does not sit pretty considering that a growing portion of Congress each year goes on a saber rattling exercise with media bashing against China for its policies.  Now it feels that the U.S. is trying to create a de-peg all on its own.  The unintended consequences of forced action can be worse than any of us would imagine if the effort was left unchecked.  It was not that long ago at all that we all joked about the United States having to change the currency name to the Peso from the Dollar.

Interesting times…

For true Fed Heads, the full minutes can be accessed here.

JON C. OGG