The word of the day is transitory. That’s my take on the release of the March 14-15 FOMC Minutes.
- The information reviewed for the March 14-15 meeting suggested that the labor market strengthened further in January and February and that real gross domestic product (GDP) was continuing to expand in the first quarter, albeit at a slower pace than in the fourth quarter, with some of the slowing likely reflecting transitory factors.
- Real GDP was expected to expand at a slower rate in the first quarter than in the fourth quarter, reflecting some data for January that were judged to be transitorily weak, but growth was projected to move back up in the second quarter.
- In their discussion of developments in the household sector, participants agreed that consumer spending was likely to contribute significantly to economic growth this year. Although motor vehicle sales had fallen early in the year and some other components of PCE had also declined, many participants suggested that the slowdown in consumer spending in January would likely be temporary.
- The slowing appeared to mainly reflect transitory factors like lower energy consumption induced by warm weather or delays in processing income tax refunds. In addition, conditions conducive to growth in consumer spending, such as a strong labor market or higher levels of household wealth, were expected to persist.
- A number of participants also cited buoyant consumer confidence as potentially supporting household expenditures, although some also mentioned that improved sentiment did not appear to have appreciably altered the trajectory of consumer spending so far.
- Participants generally agreed that recent momentum in the business sector had been sustained over the inter-meeting period. Many reported that manufacturing activity in their Districts had strengthened further, and reports from the service sector were positive. Business optimism remained elevated in a number of Districts.
- Members anticipated that inflation would stabilize around 2 percent over the medium term and commented that transitory deviations above and below 2 percent were to be expected.
- Partly in light of the likelihood that the recent higher readings on headline inflation had mostly reflected the temporary effect of increases in consumer energy prices, members agreed that the Committee would continue to carefully monitor actual and expected inflation developments relative to its inflation goal.
Balance Sheet Actions
- Survey results indicated that market participants saw a change in the FOMC’s policy of reinvesting principal payments on its securities holdings as most likely to be announced in late 2017 or the first half of 2018. Most market participants anticipated that, once a change to reinvestment policy was announced, reinvestments would most likely be phased out rather than stopped all at once.
- A number of participants indicated that the Committee should resume asset purchases only if substantially adverse economic circumstances warranted greater monetary policy accommodation than could be provided by lowering the federal funds rate to the effective lower bound.
- Several participants indicated that the timing should be based on a quantitative threshold or trigger tied to the target range for the federal funds rate. Some other participants expressed the view that the timing should depend on a qualitative judgment about economic and financial conditions.
- Nearly all participants agreed that the Committee’s intentions regarding reinvestment policy should be communicated to the public well in advance of an actual change. It was noted that the Committee would continue its deliberations on reinvestment policy during upcoming meetings and would release additional information as it becomes available.
Equity Prices
- Broad U.S. equity price indexes increased over the inter-meeting period, and some measures of valuations, such as price-to-earnings ratios, rose further above historical norms.
- A standard measure of the equity risk premium edged lower, declining into the lower quartile of its historical distribution of the previous three decades.
- Stock prices rose across most industries, and equity prices for financial firms outperformed broader indexes. Meanwhile, spreads of yields on bonds issued by nonfinancial corporations over those on comparable-maturity Treasury securities were little changed.
- Foreign equity prices increased, flows to emerging market mutual funds picked up, and emerging market bond spreads narrowed.
- The negative effect of this timing change on projected real GDP growth through 2019 was offset by a higher assumed path for equity prices and by a lower assumed path for the exchange value of the dollar.
- The staff continued to project that real GDP would expand at a modestly faster pace than potential output in 2017 through 2019.
- Many participants discussed the implications of the rise in equity prices over the past few months, with several of them citing it as contributing to an easing of financial conditions. A few participants attributed the recent equity price appreciation to expectations for corporate tax cuts or to increased risk tolerance among investors rather than to expectations of stronger economic growth.
- Some participants viewed equity prices as quite high relative to standard valuation measures. It was observed that prices of other risk assets, such as emerging market stocks, high-yield corporate bonds, and commercial real estate, had also risen significantly in recent months.
Cautiously Upbeat Fed
All in all, the Fed is cautiously upbeat.
Some bloggers thought the Fed was worried about asset bubbles, and perhaps a few of the participants are. But while “many” discussed equity prices, only “some“viewed equity prices as “quite high“.
Did anyone mention bubble? Nope. That word does not show up in the minutes.
The thought that jumped at me is the Fed’s “higher assumed path for equity prices” is supposed to offset the effect of tapering.
So discussion of bubble did not seem to take place by any measure.
If the Fed was truly upbeat in its assessment it would have started tapering already. Instead, the FOMC opinions on the balance sheet run the entire gamut of possibilities.
Here’s my favorite quote “A number of participants indicated that the Committee should resume asset purchases only if substantially adverse economic circumstances warranted greater monetary policy accommodation than could be provided by lowering the federal funds rate to the effective lower bound.”
Don’t Worry!
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Mike “Mish” Shedlock
F**k the Fed
+ Lacker should being on his way to prison….yet nothing but a quick mention in the press…move along. Next!
Feed the Fed? But Feed the Fed to what?
whatever they said it turned a triple digit dow gain in a double digit loss. on a dime. is the market finally rational? the market seems to turn with the algos and 45s latest tweet. i have to admit, i don’t get it. the more you try to explain this market with data the sillier you look
I appreciate Mish’s attempts to summarize the Fed’s statements, but I believe a shorter and more accurate summary would be:
“Fed has no freaking clue what they are doing, and they are terrified everyone will find out.”
The FOMC membership has invested their entire lives into the myth that they are omniscient and economically omnipotent — and now that they know that isn’t true (and worse, their groupies know too) they are having a typical narcissist reaction: blame everybody else for their failings.
Its amazing that the Richmond Fed’s Lacker was forced to resign after committing a crime, but evading charges by reason of being politically connected. They have no shame left
Too late. It’s already out that the Fed is dead – as any useful tool…..
Mish…I think all of this analysis from the Fed expositors will blow up when the first piece of ordinance explodes into a war…enjoy your blog and research….
Quite possibly you are correct
Definitely bet the opposite of what the FED publicly expects from the economy and stock market. The FED generates a profit for USA.gov as it monetizes perpetual deficits out to infinity or collapse, whichever comes first. So all this central planning nonsense and monetary high priest gibberish is likely to continue. If you can profit from it, great. The implication of negative rates (lower bounds) is troubling, as by necessity it means resurrection of planned police state tactics to outlaw cash, etc.
Now that the GOP controls Congress and the White House, at the very least the Consumer Financial Protection Bureau (CFPB) should be liberated from the FED. That Obama-era Frankenstein Monster with its unlimited powers and ability to create new laws needs to be brought back under Congressional accountability. In 8 years, the Marxist Obama group did an amazing amount of damage. But GOP seems to share Marxist/Democrat love affair with the Totalitarian Surveillance State. Logical next step is to move the NSA, CIA et al. out of USA.gov and into the FED along with the CFPB, where both can become unaccountable.
what he said. 🙂
Once again they won’t admit there will be no real productive growth without dealing with debt, We have record govt..debt, corporate debt, consumer debt(cars,credit card,mortgage, student) sovereign or emerging market debt,and record leverage r margin debt with equities, what am I leaving out?Debt is deflationary! Note lead story “Suddenly, Both Obamacare Repeal And Trump Tax Reform Are Dead” at ZeroHedge. So low interest rates and stock buybacks have been holding up equity markets AND the Trump reflation trade we were promised. Now what? What comes next?
I’m fairly certain nothing lasts FOREVER, so that makes everything “TRANSITORY”…
Fedspeak for “This too shall pass”…
King Solomon’s fabled reply to the request for
“a sentence that would always be true in good times or bad”.
So, thanks for nothing Fed.
Same old, Same old:
“It was the best of times; it was the worst of times.”
“Same as it ever was”.
I have mentioned this before there is one thing Trump could do that would help growth somewhat but would b hard politically. Cut Corporate tax rate to zero for companies to reincorporate in America, totally gut regulations, devise a fair corporate health care plan, and provide other incentives even subsidies if need b(almost all our trading partners provide these politically popular incentives of some sort themselves). Democrats would demigod this issue as another gift to the rich even if they know it could really help the country n the long run! That’s what’s so depressing, there is so much hate that people want to take down Trump and his administration not caring a rats ass if the country goes down with him!
What little is left of the purchasing power of the dollar is,,,well,,,transitory.
The Fed will see to that.
All these Fed bubble heads pretend to be the smartest people in the room who have all the answers. The truth is that they have no more of a clue what tomorrow will bring as you do. I no longer pay attention to their minutes. Most of the time it’s hogwash. Sometimes they’re right but then so is a broken clock.
Common sense understands we’re long in the tooth for a major correction. One day in the next several months you’ll wake up to find the bottom fell out. And all the pundits will be running in circles wailing that they never saw it coming.
Déjà vu.
So true. Every once in a while the voodoo doctors come out of the Eccles Building, shake their magic economic graphs at the sun, and proclaim that all is well. The only people buying their endlessly upbeat forecasts are stock market cheerleaders, trying to lure in the dumb money so they can sell their laughably overpriced stocks. I think everyone knows there’s something wrong with the economy, but Yellen and her crowd think they can jawbone it back to health. But how can they fix something if they don’t know why it’s broken? They would rather read a textbook than see what the bond market is plainly telling them. Does anyone take these people seriously anymore?
Forecasts determine policy to help deliver the desired future outcome.
Policy feeds back into forecasts that feeds back into policy.
Wonder why there’s a mess to clear up when reality is an inconvenience and computing power is cheap?
Another border, another day… big delays at Gib… Caballo Loco draws his gun
http://www.dailymail.co.uk/news/article-4384058/Gibraltar-police-probe-Spanish-officer-waved-gun-border.html
I remember a time when two local Spanish police forces opened fire on each other as they turned up at the same bust and both wanted the authority/credit to it… or shooting a tourist dead when tapping on the window with weapon. Sht happens in Spain. What caught my eye was the bust of a plant reactivating weapons in Bilbao, thousands, mortars… May 21 PSOE primaries, if Sanchez then government stalls, June Cataluña sets date for referendum on secession. 60% Spanish say economy bad or v. bad.
Anyways….
Two posts went to mod here for no obvious reason.
Corruption abounds too?
Good look Catalonia, English spelling.
Was the survey image that got one post moderated maybe, so will try the link instead. Unemployment top concern with corruption second and increasing
http://politica.elpais.com/politica/2017/04/06/actualidad/1491464901_189129.html
the Fed only had 2 basic functions:
job stability, and inflation control.
Epic fail on both fronts, so why do we let them anywhere near the money supply?
Excellent question
mission creep
“why do we let them anywhere near the money supply?”
Better question – what leads you to believe “we” are in charge?
Reading this quickly I thought slower processing of tax returns had been caused by unusually warm weather LOL
I guess the Fed can’t keep net purchasing US bonds forever but when they swing from buyer to seller and US debt financing costs spike things will get interesting in a hurry, at a minimum levered up US home prices will collapse.
In addition to fighting Dems and renegade Repubs I think Trump will have Yellin cutting him off at the knees with higher US debt financing costs.
Of course, of course they do. How else can Yellen justify an interest rate increase…..
“resume asset purchases”
Is that found anywhere in the Fed charter?
As a few of the respondents above have mentioned, yes, the FED doesn’t have a clue. for the decades that I have been reading about economics the mainstream reasoning has been that an economy operates on some formula or equation and if only we can find the right one we can control how the economy operates. This is the legacy of Keynes who started out his university life in mathematics and when he discovered that he was not a first rate mathematician took up the study of economic theory at Cambridge. He real contribution was econometrics or how to quantify and measure economic activity. But he never understood that individual behavior aggregated is really nothing more than chaos. Patterns may be deduced in general but the specific is harder to recognize and even more difficult to measure.
All that aside, the real crime by the FED is the unwillingness to acknowledge the amount of debt floating around in the world and all the asset bubbles that will eventually destroy wealth. The irony is that they are blundering their way towards curbing some of the debt accumulation by increasing interest rates ever so slowly. Of course the country and the world has not be done any favor by clinging to deficit spending as the norm of government operations and the consumer has embraced like behavior. For the moment President Trump has increase economic activity if only marginally. Hillary would have had in in more war and economic depression by now. Thank god for small favors. The economy will take a new direction but it is difficult to forecast that direction. In any event, we will continue to slip into depression and the world with us.
“Many participants discussed the implications of the rise in equity prices over the past few months, with several of them citing it as contributing to an easing of financial conditions.”
…
Maybe another reason. A few weeks ago David Stockman made an interesting observation re Treasury holdings and last month’s debt ceiling. Treasury paying its bills by checking under the cushions rather than issuing new debt …. allowing wall street $$s to flow into equities rather than bond market.
Treasury Department cash and other monetary assets.
February 1st, 2016 … $459.030 billion
February 29th, 2016 … $359.871 billion
February 1st, 2017 … $462.720 billion
February 28th, 2017 … $278.561 billion
Next wednesday Treasury Department issues the monthly statement for March … should be interesting.
i remember Stockman doing the interview rounds on this topic about a month ago with Neil Cavuto and others. Maybe i am mistaken, but i got the impression that he was forecasting that this debate was going to be getting media coverage by now.
Nothing to see here. Move along. Move along.