May FOMC Minutes

The FOMC Minutes are out!

Minutes of the Federal Open Market Committee – May 10, 2006

“The underlying pace of residential activity seemed to moderate in the first quarter. After unseasonably warm weather allowed a high level of single-family housing starts in January and February, starts fell in March to their lowest level in a year. New permit issuance for single-family homes also fell in March, continuing its downward trend. Multifamily starts recovered a bit in March from their low rate in February but remained well within their historical range. Home sales also declined, on net, in recent months. Although sales of existing single-family homes edged up in February and March, the level of sales for the first quarter as a whole was notably below the record high in the second quarter of last year. Sales of new homes also moved up in March, but their average in the first quarter was down substantially from the peak in the third quarter of last year. House price appreciation appeared to have slowed from the elevated rates seen over the past summer. Growth in the average sales price of existing homes in March, versus a year earlier, decelerated sharply, and the average price for new homes in March fell compared to a year earlier. In addition, other indicators, such as months’ supply of both new and existing homes for sale and the index of pending home sales, supported the view that housing markets had cooled in recent months.”

“Although the Committee discussed policy approaches ranging from leaving the stance of policy unchanged at this meeting to increasing the federal funds rate 50 basis points, all members believed that an additional 25 basis point firming of policy was appropriate today to keep inflation from rising and promote sustainable economic expansion. Recent price developments argued for another firming step at today’s meeting. Core inflation recently had been a bit higher than had been expected, and several members remarked that core inflation was now around the upper end of what they viewed as an acceptable range. Moreover, a number of factors were augmenting the upside risks to inflation: the surge in energy and commodity prices, some recent weakness in the foreign exchange value of the dollar, and the possibility that the apparent increase in inflation expectations could, if it persisted, impart momentum to inflation. In addition, the economy appeared to be operating at a relatively high level of resource utilization and had been growing quite strongly, and whether economic growth would moderate to a sustainable pace was not yet clear. At the same time, members also saw downside risks to economic activity. For example, the cumulative effect of past monetary policy actions and the recent rise in longer-term interest rates on housing activity and prices could turn out to be larger than expected. Still, it seemed most likely that, with modest further policy action, including a 25 basis point firming today, growth in activity would moderate gradually over coming quarters, pressures on resources would remain limited, and core inflation would stay close to levels experienced over the past year.”

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42 Responses to May FOMC Minutes

  1. grim says:

    Is it just me or has the style of the minutes changed dramatically?

    Either way, worth a look.


  2. Anonymous says:

    50 basis points!!! WOW!


  3. delford says:

    I think it is very telling that they actually said 50 bp’s. The amrket will not like this. Of course this is what papa Greenspan should have been doing back in Jue of 04, 50 bp increases.

    Mayve now we can get back to the days, when there was risk in the market, and the Fed could actually instill fear in the markets.

  4. RentinginNJ says:

    I think it is very telling that they actually said 50 bp’s.

    The AP headline is “Fed explored half-point increase in May”.

  5. bairen says:

    Greenie wanted to delay any bad scenarios till after he had left office. BB should send him a big thank you note.

  6. Anonymous says:

    I just finished reading all of today’s articles in this blog. Isn’t there any good news out there?!?!?!?? Pass me the kool aid…

  7. UnRealtor says:

    “I just finished reading all of today’s articles in this blog. Isn’t there any good news out there?”

    Yes, housing prices are dropping!

  8. Richie says:

    I still feel today that the economy was not that bad from 2000-2003. There was no reason to drop rates to ridiculous low levels.

    Atleast now, my savings account is actually earning some money. It’s appreciating faster then my house at this point!

  9. delford says:

    I think we could see a 50 bp hike in June, what betetr way for BB to show he is in charge, and is serious about fighting inflation.

    I wish he would as it would just speed this whole process up. Swift, hard, and ugly, but then it would be over.

  10. grim says:

    50 bps seems very unlikely at this point..


  11. UnRealtor says:

    “I still feel today that the economy was not that bad from 2000-2003. There was no reason to drop rates to ridiculous low levels.”

    That’s quite a statement — few would have made it in Sept/Oct 2001.

  12. Anonymous says:

    I agree that rates went way too low. Think about when they moved from 1.5% to 1.25% and then from 1.25% to 1%. Did you feel like going out to borrow more money??? The economy was in question, but moving below 2% didn’t matter much IMO. All that did was pump up RE prices. Coming back up from 1% to 2% didn’t have any effect either, other than providing an early signal to GET OUT of any ARMs you may have had and/or to SELL. Too late now!

    3-toed Pete

  13. Anonymous says:

    Its during these times of uncertainity that you can find good investments. Money will move into the U.S stock market (undervalued compared to emerging markets and commodities) that will the cushion the blow from falling home prices. People’s 401K’s will see rising value that will save this country from a recession/depression. Oil will fall down to $20-$30 a barrel. You see now Mr.Bush is ready to talk to Iran.

  14. Anonymous says:

    How much longer can it last?? I mean even though debt levels are staggering, gasoline is at $3.00, and rents are soaring, people are continuing to spend like money grows in the air.

    How is it that the average 20 year old in NYC can spend hundreds on a pair of jeans & another $3,000 a month on an apartment.

    Oh, I forgot, NYC is different. Everyone wants to live here, no matter what it costs. You are considered inferior unless you make over $200,000 a person and can spend thousands on rent & clothing each month.

  15. Anonymous says:

    It won’t matter here in NYC & NNJ. These regions are different as they say.

    Everyone wants to live here and is willing to pay $2,000,000 for a condo and can put 20% down, or pay $3,000 a month in rent.

    They will say that interest rates can’t crash the housing market here because those who are buying anything are all under 30, making in the mid six figures and have enough wealth to make them immune from higher interest rates or gas prices. Better they continue to live their fantasy of Paris Hilton & American Idol

  16. seattle price drop says:

    Good link Grim. Apparently, Mr. Paulson does not understand China well. He underestimates them.

    He’s been there 70 times, BUT he did not start going until the late 90’s. By that time, the terrific transformation was well underway.

    He did not see China move from the middle ages to the 21st century in 5 short years as people who visited late 80’s to mid 90’s did.

    Oh well… More of the same from the guys in charge.

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