An acquaintance of mine, a currently high, formerly well-placed, government official, was kind enough to provide the following insider insights (his remarks are in the brackets) into the hidden meanings of the FOMC statement released yesterday. Of course I feel compelled to add that his interpretations and words are not necessarily meant to be representative of this blog writer's opinions. Enjoy.
Information received [We like Erin Burnett on CNBC.] since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn [I didn’t hear a cat; I didn’t see a cat . . .What bounce?]. Conditions in financial markets have improved further [The DOW is up and who gives a hoot about volume anyway?], and activity [foreclosures] in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit [Now that the car has run out of gas, its speed seems to have stabilized]. Businesses are still cutting back on fixed investment and staffing, though at a slower pace [Firings have slowed now that there are fewer employees to fire]; they continue to make progress in bringing inventory stocks into better alignment with sales [We are confident that empty shelves will be filled if people ever start buying stuff again]. Although economic activity is likely to remain weak for a time [our lifetime], the Committee anticipates that policy actions [Whatever it is we are doing] to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces [Whatever it is that our friends are doing] will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability [Whatever!].
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued [at least below Carter Administration levels . . . we hope.] for some time.
In these circumstances, the Federal Reserve will continue to employ a wide range of tools [We will throw everything we have at it; maybe something will stick.] to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent [maybe 0 percent and some kind of rebate . . . ] and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period [We’ll be lucky to get past Thanksgiving.]. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases [We’re running out of paper.] in order to promote a smooth transition in markets and anticipates that they will be executed [Better them than us.] by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets [As the smoke clears, our worst case scenario is that there will be more smoke]. The Federal Reserve is monitoring the size and composition of its balance sheet [After much discussion, we voted 8 to 2 that size would be 8 ½ X 11 and that the composition would be words and numbers in columns.] and will make adjustments to its credit and liquidity programs as warranted [We don’t know what we mean by this. Hey, what would YOU do?].
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.