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Do FOMC Minutes Indicate QEIII Is Coming?

  • Written by Syndicated Publisher No Comments Comments
    August 24, 2012

    I seem to stand alone in my opinion, given the proliferation of headlines and analysis that the minutes of the Fed’s July 31 FOMC meeting released yesterday provide almost a guarantee that further stimulus in the form of QE3 will be coming out of the next meeting on September 13. 

    They may be right. But the confidence seems to stem from the minutes revealing that, “Many participants at the meeting agreed that the information received since the June meeting suggested that economic activity had decelerated in recent months to a slower pace than they had anticipated.”

    And further on in the minutes that, “Participants discussed a number of policy tools that the Committee might employ if it decided to provide additional monetary accommodation to support stronger economic recovery. . . . Many participants expected that such a program could provide additional support for the economic recovery.”

    But wait a minute!

    Those assessments were based on an economic snapshot at a time when the U.S. economic reports had been, as the members noted, “decelerating” for some time and had reached an ugly stage where they were worsening with no sign of bottoming.

    And still they were obviously not considered to be bleak enough that action was needed, since no action was taken.

    All that happened, as it says further on in the minutes is that, “With respect to the statement to be released following the meeting, members agreed that it should acknowledge the deceleration in economic activity. But because most saw no significant changes in the medium-run outlook, they agreed to continue to indicate [in the statement following the meeting] that the Committee anticipates a very gradual pickup in economic activity over time . . . . and agreed to defer a decision[on further stimulus] until the September meeting.”

    And that’s just what their statement back then said.

    Now fast forward to the current situation.

    Since that meeting have come numerous improved economic reports, including the surprisingly strong jobs report for July, unexpectedly positive housing reports, retail sales up 0.8% in July after declining 0.7% in June, industrial production was up 0.6% in July after rising only 0.1% in May and June, and consumer confidence unexpectedly rising in August.

    That is all significantly improved information from what the Fed saw in its economic snapshot at the end of July, when it decided that even the dismal picture it saw then did not warrant action.

    So now the unexpectedly positive reports and brighter picture since will prompt action?

    I just don’t buy that analysis.

    Unless the picture turns sour again, such as no follow through in the next jobs report to the positive jobs report earlier this month, I’ll be surprised if they offer any more than perhaps more strongly worded assurances that the Fed stands ready to provide more if needed.

    But as I said, I seem to be in the minority with that thinking, so I must be wrong.

    Euro officials return from vacations and so do disagreements.

    European officials pretty much disappear for vacations in August, regardless of pressing problems. The seriousness of the euro-zone crisis did not interfere with that habit this year, which has removed concerns about ‘will they or won’t they’ from the news.

    But as the officials return it looks like the questions return with them.

    The Prime Minister of Greece, facing growing unrest, even rioting in some areas, over austerity measures, has requested an additional two years to make the cuts designed to bring their budget deficits under control.

    But in a radio interview German Finance Minister Schaeuble says that granting Greece more time or money will not help Greece overcome its problems.

    Euro-zone PMI still in recessionary contraction.

    It was reported last night that euro-zone PMI contracted in August for the 7th straight month, coming in at 46.6, up fractionally from 46.5 in July, and still below the 50 level that separates expansion and recession.

    More evidence of hard landing for China.

    It was also reported last night that the HSBC’s version of China’s Manufacturing PMI dropped to 47.8 in August, a 9-month low, from 49.3 in July.

    That evidence of the severity of China’s economic slowdown ties in with Tuesday’s report that Japan swung back to a trade deficit in July as exports to China, its largest trading partner, plunged almost 12%.

    Subscribers to Street Smart Report: There is an important hotline from last evening, and an in-depth ‘Mid-Week Market Signals and Recommendations’ report from yesterday afternoon, in the subscribers’ area of the Street Smart Report website.

    To read my weekend newspaper column click here: Calm Before A Storm- August 17, 2012. [rate]

    Images: via Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

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