September FOMC Minutes Focus On Asset Purchases, Warning of the Fiscal Cliff

The FOMC Minutes from the September 12 to 13 meeting have been released. The one objection was from Lacker as you would have guessed. Most FOMC participants believed that the negative effects of QE3 could be countered if need be. The FOMC is apparently having issues with finding a consensus on their numerical targets. The term “asset purchases” was noted five different times in the first paragraph detailing the potential effects of large-scale asset purchases.

One key issue stood out here in the economic outlook: “The expansion in economic activity was expected to narrow the significant margin of slack in labor and product markets only slowly over the projection period, and the unemployment rate was anticipated to still be elevated at the end of 2014… the staff continued to forecast that inflation would be subdued through 2014.” On the coming Fiscal Cliff: “if an agreement was not reached to tackle the expiring tax cuts and scheduled spending reductions, a sharp consolidation of fiscal policy would take place at the beginning of 2013.”

It was further noted on the dissenting vote: “Mr. Lacker dissented because he believed that additional monetary stimulus at this time was unlikely to result in a discernible improvement in economic growth without also causing an unwanted increase in inflation. Moreover, he expressed his opposition to the purchase of more MBS, because he viewed it as inappropriate for the Committee to choose a particular sector of the economy to support; purchases of Treasury securities instead would have avoided this effect. Finally, he preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate were likely to be warranted.”

FULL FOMC MINUTES HERE

JON C. OGG