Minutes of Fed's August Meeting - Little News to Chew On

The Fed's minutes highlight that the FOMC views employment and inflation as below levels that are inconsistent with their dual mandate. Recent economic reports were considered disappointing although the minutes indicate that members expect the pace of growth to pick up in 2011 reflecting accommodative monetary policy, further improvements in financial conditions and as household and business confidence returns. The decision to reinvest the proceeds of maturing MBS and Agency debt was due to worries that long-term interest rates would rise and that any tightening in financial conditions "would be inappropriate given the economic outlook." All but one member agreed it was appropriate to make the Treasury purchases with the proceeds although there was some discussion about whether this would send the wrong signal to investors about the potential for the resumption of large-scale purchases and/or whether it would complicate the ability to implement an exit strategy when the time came.

The minutes also say that alongside research into the eventual exit of the current unusually accommodative policy stance, members considered what steps could be taken if additional stimulus needed to be implemented. All in all the statement provided little fresh information reiterating the Fed's optimism that although growth will be moderate in the second half of 2010, prospects for a stronger performance remain intact.