FOMC Minutes Show Identity Crisis Inside the Fed

It seems as though Ben Bernanke and friends inside the Federal Reserve are not really seeing eye to eye per the minutes of the August 9, 2011 FOMC meeting.  There is arguably an identity crisis in the works where some want to keep policy as is and some want to ease conditions a bit more.  There is not much inflation, there is inflation.  Policy worked, policy did not do enough.  Stimulus, no stimulus.  Today’s minutes are giving the markets one bit of hope even if that hope is frightful… Despite an indication that no QE3 is coming by Bernanke in his latest speech, the arguments inside the latest FOMC meeting are lending more credibility that additional economic stimulus may be coming (or possible).

Three Fed members dissented over the latest meeting and what is being read into the meetings minutes is a larger call for some form of quantitative easing.

Here is one note: Some participants judged that none of the tools available to the FOMC would likely do much to promote a faster economic recovery. Another note: …these participants thought that providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or unemployment.

“…most members agreed that the economic outlook had deteriorated by enough to warrant a Committee response at this meeting.”

“some members expressed the view that additional accommodation was warranted because they expected the unemployment rate to remain well above, and inflation to be at or below, levels consistent with the Committee’s mandate.”

“A few members felt that recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation.”

The Fed members were nowhere close to unanimous on the bias of how to point to how long the ‘extended period’ should be formalized.

“members generally agreed that it was important to acknowledge that the recovery had been considerably slower than the Committee had expected.”

The reality is that even a hint of QE3 is going to boost some hope.  What is sad is that this is more sugar today being paid for by a promise of more salt tomorrow.  The FOMC’s full minutes are here.

Our argument… Have Washington create less uncertainty with fair and balanced policy in a fiscally responsible manner.  We’ll all be better off in the long run.

JON C. OGG