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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.


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