FOMC Minutes: Recession & Depression Simultaneously

The FOMC Minutes from the late October 2008 meeting are out, and as you can imagine it is far more somber than any minutes in recent years.  The worse thing is that the projections look pretty bad, and we do not even think they are being objective enough.  If you don’t think this is a recession or a depression just read through the full minutes.  You will see a recession and you might get depressed…..

• The pace of economic activity appears to have slowed markedly…
• …a decline in consumer expenditures.
• Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports.
• …intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.
• …expects inflation to moderate in coming quarters to levels consistent with price stability.

The crux is this: "Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.  IN SHORT: MORE RATE CUTS OR MORE CREATIVE ACTIONS

More important than any of the minutes is the OUTLOOK from the FOMC in the full minutes, and these are just the "central tendency numbers":

• outlook for unemployment is worsening… financial conditions have worsened significantly…anticipates significant weakness in economic activity….
• economy to contract in second half of 2008 (duh) and the first half of 2009 with an entire year range of -0.2% to +1.1%…. anticipates above trend growth of +2.8% to +3.6% in 2011
• unemployment peaking in 2009 at 7.1% to +7.6%, but this is well above the June forecasts it gave of only 5.3% to 5.8%.

For a real range it is offering -1.0% to +1.8% GDP for 2009 and unemployment in a range of 6.6% to 8.0%.

Frankly, none of this matters. The government cannot forecast.  Even the private sector has been unable to adequately forecast.  We have been calling this an unofficial recession since the end of Q1. Even if we had all the data ahead of time via a crystal ball, it seems that the market would sell when it hits the tape.

Jon C. Ogg
November 19, 2008