The FOMC March 13 meeting minutes are now available. While I am sure most people would find the minutes captivating reading, I thought I'd provide just a few highlights.
The bottom line is that the 10-person Federal Open Market Committee voted to support a stronger economic recovery through a "highly accommodative stance for monetary policy." They believe they can do this while maintaining inflation at a mild 2%. The decision and language supports keeping the fed funds rate at an exceptionally low 0 to % through late 2014.
We believe this is a mistake in that this policy will provide fertile soil from which harmful inflation will take root. However, it is never wise to bet against the fed. Plan on low interest rates to be around for quite a while and borrow money at these incredibly low interest rates to invest in your business or in rental properties.
There is some good news in that the committee is working to extend the average maturity of its holdings securities. It wants to sell its short-term debt and buy an equal amount of long-term debt in order to lock in favorable interest rates. That is easier said than done, but to the extent that they are successful it will help the U.S. avoid a debt crisis in this decade.
The FOMC also recognized that households' real disposable personal income has risen as a result of increases in labor earnings. That speaks well to what has already happened in the economy and to the potential for more consumer spending in the future. Great news! The committee also recognized that household net worth grew in the fourth quarter of 2011. Expect it to have gone up in the first quarter of 2012 as well thanks to the solid gains in the stock market. More good news!
The committee further notes that employment gains were encouraging of late, especially in the private sector. We have been passing this information along to our friends for quite a while now.
Despite all this good news, the FOMC is committed to the accommodative monetary policy cited above. Keeping interest rates too low for too long was Alan Greenspan's mistake as well. One member of the FOMC, Richmond Fed President Jeffrey Lacker was the only member to vote "no" to the loose monetary policy. He believes the fed funds rate will have to be increased considerably sooner in order to avoid the introduction of inflationary pressures. This is the sane response to the current condition of the U.S. economy and it is the type of forward thinking we would hope to see throughout the FOMC.
Thank you Mr. Lacker, you are my hero of the month.