|I reviewed the minutes from the October Federal Open Market Committee meeting to look for the differences in my view of the economy that would account for the Federal Reserves more aggressive reduction in interest rates than I expected.|
After reading the minutes it appeared my view of the economy was very much in line with what the Federal Reserve was seeing. The difference is that the Federal Reserve Board see deeper cuts in interest rates having a larger short term effect than I believe. Also, I think it is a little short sighted not looking at how much and how fast they are going to have to take back the goodies when the economy turns up. Here is what was said to address this issue: "Monetary policy is a flexible instrument and, with inflation expectations likely to remain relatively benign, policy could be reversed in a timely manner later should stimulative policy measures and the inherent resiliency of the economy begin to foster an unsustainable pace of economic expansion."
I have to assume that, when in coming months, they say they are raising rates to be more inline with economic growth and inflation, the market will be understanding that we were in an unusual situation making interest rates spike down....an unusual amount.
Lastly, when in October they argue that they are decreasing rates more because; "the decline in stock market prices and the widening of risk spreads had damped the stimulative financial effects of the Committee's earlier easing actions" might apply to last October, but not this time around, when the stock market was higher than it was prior to September 11th. Anyway, I will continue to learn.... and provide them my views <g>.
For those interested in reading the Federal Open Market Committee meeting minutes, click on the following link: federalreserve.gov