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Review of the Federal Reserve’s Minutes: ‘Where Are Those Green Shoots?’

Posted by Larry Doyle on May 20, 2009 8:00 PM |

The Fed released the minutes from their April 28-29 meeting. Let’s dive right in straight from the Fed’s own website. Minutes of the Federal Open Market Committee:

Almost all participants viewed the near-term outlook for economic activity as having weakened relative to the projections they made at the time of the January FOMC meeting, but they continued to expect a recovery in sales and production to begin during the second half of 2009. With the strong adverse forces that have been acting on the economy likely to abate only slowly, participants generally expected a gradual recovery: All anticipated that unemployment, though declining in coming years, would remain well above its longer-run sustainable rate at the end of 2011; most indicated they expected the economy to take five or six years to converge to a longer-run path characterized by a sustainable rate of output growth and by rates of unemployment and inflation consistent with the Federal Reserve’s dual objectives, but several said full convergence would take longer.

Call me cynical, but where are the ‘green shoots’ in that review? In my opinion, this review is akin to a CYA analysis, as in things are going to get worse before they get better . . . I hope.

By every measure, the Fed governors are revising their calls on unemployment, output, and inflation to worsen in 2009 relative to their call in January. Were they merely being overly optimistic in January? Perhaps these minutes are similar to the regular revisions provided each and every month depicting the economy to be in tougher shape than previously advertised.

I did find it very interesting to see the assessment targeting a 5 to 6 year time horizon–and perhaps longer–for the economy to regain the trajectory consistent with Fed objectives.

Given that these minutes are aggregated in a closed door session, they may actually more accurately embody a sense of veracity and integrity. How ’bout that!!

How did the equity market respond to these minutes? The DJIA reversed course from being up 100+ points in the morning to close down 52 points.


  • TeakWoodKite

    Green Shoots and Ham… TurboMan I am.

    Seems like a little “Oh Tara” is going on. Wonder what similarities there are to Reconstruction.

  • Petricone456

    It seems that reality is setting in as we’ve moved to dealing with the crisis from watching it evolve (well hopefully its done evolving)… Do you think the looming negativity hanging over the equity market could lead to a near term bounce in the prices of U.S. notes and bonds? Also, how much of a kick do you think the stimulus package will give to the economy in 2H09 and 2010?

  • Very interesting price action in the Treasury market today. Even with equities down 1.5-2%, Treasurys are also getting hit. Why?

    Disappointing buyback by the Fed this morning and more supply coming next week. While we may not know what the economy will do or what the equity market will do, we do know one thing for sure. We will have massive supply of U.S. Treasury paper (likely between $2-$2.5 trillion) in calendar 2009.

    I believe the market is in the process of “testing” the Fed to force them to step in. Add it all up, though, there will be more govt paper to underwrite here in the U.S. along with more govt paper to underwrite globally and rates have to move HIGHER.

    In regard to the stimulus, I personally think the equity market has already discounted the kick. The problem is in the near term the economy is not getting better adn in certain sectors is seemingly getting worse.

    Will remain VERY interesting.

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