The Fed Meeting Minutes Show No Real Intent To Start QE3

Posted on August 22, 2012

After reading the minutes from the Federal Open Market Committee meeting held on July 31 – August 1, 2012 it was clear to me that there is no intent by the Federal Reserve to carry out QE3. Since I want you to finish reading this before you fall asleep I am simply going to highlight what the committee discussed about the likely benefits and costs of a new asset buying program or QE3.

Benefits of a new program

Many committee members agreed that it would…

  • place downward pressure on interest rates (How much lower can we go?)
  • contribute to easier economic conditions.

Some participants agreed that it would…

  • Boost business and consumer confidence.
  • Reinforce “commitment” to sustained progress. (does this remind anyone of what Draghi said?)

Potential costs/risks of a new program

  • Concerns about trading impacts in markets related to treasury securities and agency mortgage-backed securities;
  • That it could affect ability to normalize the Federal Reserve Balance sheet when “accommodation” is over;
  • Long term inflation risks;
  • Higher risk of financial instability

There was nothing discussed in the meeting minutes that said another round of quantitative easing was imminent.  There was one quote that referred to the markets perceptions about further monetary easing.

“Treasury securities declined to a lower expected path of the federal funds rate, the continuation of the maturity extension program announced at the June FOMC meeting, and perceptions of an increased likelihood that the Federal Reserve will ease monetary policy further.”

Of course the markets erased some of the losses on the news. Be careful out there as this “perception” could be short lived.