March FOMC Meeting Minutes

Hot off the Fed Presses:

Minutes of the Federal Open Market Committee

Housing activity had moderated somewhat from the robust pace of the past summer. Although the level of single-family housing starts was unusually high in January and February, much of this strength was likely the result of mild winter weather; new permit issuance extended the downward trajectory that began in October. After an unusual spike in January, multifamily housing starts dropped back in February to a rate well within their historical range. Sales of new homes fell in the first two months of the year, while sales of existing homes turned up in February for the first time since last August; both measures were well below their peaks of mid-2005. The stock of homes for sale was elevated compared with its range of the last several years. Mortgage applications continued to decline in February, and survey measures of homebuying attitudes also maintained their recent downward trend. Housing demand was likely damped by rising mortgage rates, which moved up further in late 2005 and early 2006. House price appreciation appeared to have slowed from the rapid pace of the summer, but price increases for both new and existing homes remained well within the elevated range that has prevailed in recent years.

Regarding the major sectors of the economy, meeting participants noted that consumer spending appeared to be growing at a solid pace, notwithstanding earlier rises in energy prices. Contacts in the retail sector reported strong demand, and lending to households seemed to be robust. However, some automobile dealers reported subdued demand for domestic name-plate products. In coming quarters, consumer outlays were expected to be supported by continued employment gains, household income growth, and relatively low long-term interest rates, even if gains in housing wealth abated.

Meeting participants saw both upside and downside risks to their outlook for expansion around the rate of growth of the economy’s potential. In the housing market, for instance, some downshift from the rapid price increases and strong activity of recent years seemed to be underway, but the magnitude of the adjustment and its effects on household spending were hard to predict. Some participants cited stronger growth abroad and robust nonresidential investment spending as potentially contributing more to activity than expected. It was also noted that an abrupt rise in long-term interest rates, reflecting, for example, a reversion of currently low term premiums to more typical levels, could weigh on both household and business spending.

In the Committee’s discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 4¾ percent at this meeting. The economy seemed to be on track to grow near a sustainable pace with core inflation remaining close to recent readings against a backdrop of financial conditions embodying an expectation of some tightening. Since the available indicators showed that the economy could well be producing in the neighborhood of its sustainable potential and that aggregate demand remained strong, keeping rates unchanged would run an unacceptable risk of rising inflation. Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy. However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance. The need for further policy firming would be determined by the implications of incoming information for future activity and inflation.

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32 Responses to March FOMC Meeting Minutes

  1. Metroplexual says:

    Ok, so the 10 year dipped below 5% and Marketwatch is claiming that the market upswing today is due to an interpretation of the FOMC Minutes as saying they are going to let up on the rate hikes. Am I missing something here.

    “In the Committee’s discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 4¾ percent at this meeting.”

    and then Marketwatch has

    “Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy,” the summary said.

    http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BF70724CE%2D4603%2D46E3%2DB9CD%2D5D7DD31E6394%7D&siteid=mktw&dist=

  2. Anonymous says:

    So when the Fed eases up on rates and with Wall Street making bundles… that means the bubble is preserved? People still seem to be buying in the nice towns. I know, I know the nice town argument again, but there seems to be demand and the money to spend.

  3. Anonymous says:

    You can’t preserve a bubble with no buyers. It’s too late. Inventories are already too high, mortgages are too risky and all but the stupidest specuvestors have left the building.

  4. Anonymous says:

    Even if the Fed raises rates just 1 more time and then pauses, I can’t see how this helps the NJ housing market improve. Current rates are already high enough to put decent houses in good areas in NJ out of reach of most buyers.
    Add to that the fact that buying RE is starting to lose its “chicness” (it’s amazing how few people are talking about it, as opposed to this time last year), and you have a recipe for severe market deterioration in the next few months even with a rate pause.

  5. Anonymous says:

    At this point, since it’s well known that much of the consumer spending has been with debt, not cash, isn’t it time to reign this sucker in a bit?

    Or do they want EVERY LAST PERSON in the US to be underwater in debt?

    If this market didn’t crash, that would be the worst possible thing for the US economy long term.

    Let’s just get it over with and wipe up the mess.

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