The FOMC Minutes from the December 14, 2010 meeting are out, and you can forget the bulk of the commentary.  This is about justification and rationalizing its second round of Quantitative Easing, or QE2.  The FOMC noted that interest rates rose because of several factors such as market anticipation of forward effects, better economic data, QE2 anticipation, greater deficit spending projections after tax-cuts, year-end positioning, and on.

What is interesting here outside of QE2 is that the FOMC revised lower its 2011 and 2012 inflationary targets, in part because retailers and suppliers are having a hard time passing on higher prices to consumers.  The staff revised its projected increase in real GDP higher in the near term, but further noted that the outlook for real economic activity over the medium term was little changed compared to the projection prepared for the November meeting.

What the FOMC is selling in the Minutes is a notion that down is up and is down, at least that is a partial take on it.  That is at least how it feels.  The explanation is that QE2 worked because the lower QE2 kept rates lower than what some were calling for.  The argument is that the rates would even be higher without the $600 billion plan of purchasing intermediate-term Treasuries.  Considering that this data is three weeks old now is making this way after-the-fact.

Also noted: Economic activity was rising at a moderate rate, but the unemployment rate remained elevated. Labor demand rose further in recent months while unemployment stayed at a high level.  Industrial production in manufacturing rose at a solid pace in October across many industries.  Activity in the housing market was still quite depressed.  Real business investment in equipment and software appeared to be increasing and real inventory investment rose sharply in the third quarter

The FOMC extended its dollar liquidity swap arrangements with foreign central banks past January 31, 2011 to terminate on August 1, 2011.

So we had an 80 basis-point rise in the 10-Year Treasury yields over the last two months.  The arguments over whether QE2 worked or not will be ongoing for years, regardless of what Ben Bernanke and friends try to convey in this report and in the coming reports.

FULL MINUTES ARE HERE

JON C. OGG

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