Fly on the Wall at the Fed — What They’re Thinking

by Jon Markman | October 25, 2011 6:00 am

One of the most important players in any market is the Federal Reserve. It controls the amount and cost of money in the system, so it naturally has to be at the center of our attention at all times.

That’s what makes the release of its meeting notes so fascinating, if you have the slightest bit of policy wonk in you at all. It’s like putting your ear to the door and hearing (albeit three weeks after policies are announced) what the grownups are talking about.

BMO Financial senior economist Michael Gregory always does a nice job analyzing Fed minutes. His interpretation of the October notes is that the Fed, at its Nov. 2 meeting, is not likely to embark on another round of quantitative easing, if only “to allow some time for the past two actions to percolate.” But he thinks more easing is inevitable, which ultimately is going to be a plus for stocks — possibly from lower levels.

Here’s a few excerpts from his study of the minutes of the Sept. 20-21 Federal Open Market Committee meeting:

Bottom line

This Fed team has been the most accommodating in history, and it is still scrambling for more ways to provide monetary tools to forestall deflation and recession. Nice to see that the FOMC members are on the case, but frankly it’s doubtful that they will act soon enough, or powerfully enough, to forestall the downshifting of the business cycle and, with it, deeper unemployment and erosion of home prices.


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