If you were unlucky enough to have to read the minutes of the Federal Reserve Open Market Committee (FOMC) released yesterday, you may have been disturbed by what you found. Within the notes on the view of the Federal Reserve Governors and Presidents in attendance (a.k.a. participants) you would have noted words and phrases like; uncertain, cautious, mixed, less strength, remained weak, remained depressed, gains might not be sustained, increased moderately, still sluggish, unemployment remained elevated, etc.
Even optimistic notes from the Fed were guarded.
On the euro-area crisis:
In addition, participants noted that recent policy actions in the euro area had helped reduce financial stresses and lower downside risks in the short term; however, increased volatility in financial markets remained a possibility if measures to address the longer-term fiscal and banking issues in the euro area were not put in place in a timely fashion.
On housing in the U.S.:
Most participants agreed that, while recent housing-sector data had shown some tentative indications of upward movement, the level of activity in that sector remained depressed and was likely to recover only slowly over time.
On employment:
Some participants expressed the view that the recent increases in payrolls likely reflected, in part, a reversal of the sharp cuts in employment during the recession, a scenario consistent with the weak readings on productivity growth of late. In this view, the recent pace of employment gains might not be sustained if the growth rate of spending did not pick up. Several participants noted that the unseasonably warm weather of recent months added one more element of uncertainty to the interpretation of incoming data, and that this factor might account for a portion of the recent improvement in indicators of employment and housing.
In the face of the moribund outlook, the Fed has decided to simply continue on with its policy of stimulus by keeping rates well below their natural levels and holding trillions in assets on its balance sheet. Judging by the participants own analysis of the economy, even after years of these policies, they have not worked. Savers will draw the short straw from a continuation of the policy. Super low rates coupled with inflation will continue to erode the purchasing power of retirees’ nest eggs.
