We have just gotten the minutes from the FOMC meeting that ended on April 29. 2009. What we were looking for were comments regarding a potential exit strategy for near-zero rates on Fed Funds and an outlook noting the recent increase in commodity prices potentially adding to inflation. A key idea that traders and investors will focus on is that there was also a brief discussion that the Fed would need buy more Treasury and MBS securities.
In the minutes, the FOMC noted that it was downgrading economic expectations from January through 2011 and expects the unemployment to be above 9% through 2010. While thre is no major fear of inflation, the FOMC did note that the risks have diminished that we would enter deflationary environment.
On the broad economy, the FOMC saw “the pace of contraction waning” which fits in with our thesis of a “decrease in the rate of change” we were looking for. The FOMC noted stronger financial conditions and higher confidence. There was a brief note about the downturn in the housing market bottoming out, although that was not unanimous.
What is interesting here is that there is little or no solid tone hinting at the reintroduction of a FED FUNDS rate other than a target of 0.00% to 0.25% and there is no hint of higher rates coming.
While we were hoping for more here and while the trading and investing community may have been hoping for more on the inflation and return of real interest rates, if you think about there is really no surprise here at all. Could you imagine if Ben Bernanke and friends came out and said they were getting very worried about inflation? Or what if they said they were seeing a false sense of optimism that would be met only with more pain? Neither case would generate a welcome wagon by the markets. Bernanke and others have said that rates would remain low for some time into the future in numerous speeches. Maybe they actually meant it.
Here are the full minutes from the FOMC.
JON C. OGG
MAY 20, 2009
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