Minutes to FOMC – Zombie Headwinds


They just won’t die. The seemingly endless parade of impediments holding back a more robust economic recovery have included existential threats to the Eurozone, financial crises, natural disasters, turmoil in the Middle East and Ukraine, polar vortexes, and now renewed recession and the threat of deflation in the Eurozone, US currency appreciation and slowing global growth. As the US economy moves slowly but surely along the path to economic recovery the outside world just won’t let up.

The Federal Reserve released the minutes from the Federal Open Market Committee (FOMC) meeting held in September and while the Fed staff economists briefing the committee and the FOMC members reported plenty of promising signs in the economy, they also saw plenty to be nervous about.

The positives are strong enough that the October meeting is highly likely to produce an announcement of the end of the asset purchase program. The negatives are strong enough that no agreement can be reached on the language to convey the timetable for increases in the federal funds rate, beyond “a considerable time” after asset purchases end. There is general agreement that the stance of monetary policy will not be calendar based, but driven by economic conditions; faster improvement would motivate an earlier increase, slower progress a later increase. However, the specific list of data points and thresholds continues to elude the committee’s vocabulary.

While struggling for the words, the ideas and goals among policymakers are clear. Despite measurable progress the economic recovery remains vulnerable, and neither fiscal nor monetary policy are well positioned to respond to setbacks. At this point it is better to err on the side of caution, moving slowly, and risking temporarily higher than desired inflation, than to move too quickly and risk jeopardizing the progress already made. In the current uncertain economic climate, you never know what might be lurking in the shadows.


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