Diane Swonk, Chief Economist
August 31, 2010 – 2:00 p.m. CT
Fed Minutes Reveal Dissent
The minutes from the most recent Federal Open Market Committee (FOMC) meeting, which included the Fed's decision to maintain rather than draw down the Fed's balance sheet, confirmed what we already knew. There was NOT much consensus regarding the health of the economy or where the Fed should move next by the participants at the meeting.
This was already revealed by a "leak" to The Wall Street Journal (WSJ) by some disgruntled meeting participants just days before Fed chairman, Ben Bernanke, was scheduled to give his "We will do more if we need to," speech in Jackson Hole, Wyoming last Friday.
Not surprisingly, the minutes, which are carefully edited, do not show the degree of dissent (by seven meeting participants) that was reported in the WSJ. Those who leaked to the WSJ, however, clearly felt that they needed to make a statement.
I don't feel it is appropriate to divulge all of what I heard and saw at Jackson Hole regarding the dissonance within the Fed. (Some of which was too childish and offensive to repeat.) I will, however, share a few of my own thoughts and observations about why we are where we are.
We are in uncharted economic waters, with no precedent from which to draw lessons. Under such circumstances, one should expect a high level of debate and disagreement about where we are going, even (especially) by very smart people.
I do believe, however, that one should also expect a certain level of respect and decorum for the Fed as an institution. The WSJ article was a clear violation of that respect. Moreover, it added insult to injury for an economy already plagued with uncertainty.
The Bottom Line: Disagreements within the Fed are always legitimate. How the Fed expresses those disagreements, however, has become an issue of debate. In my view, it is perfectly fine for members of the meeting to "officially" dissent, as Tom Hoenig of the Kansas City Fed has consistently done. It is also okay to give speeches and interviews regarding your differences to the public. Leaking information to a major news outlet, just before the chairman intends to deliver a major policy speech, however, seems (how do I say this nicely?) counterproductive.
That said, Ben has himself promised that the committee will act - with or without a full consensus - to further stimulate the economy, should the need arise.
Moreover, his comments and the FOMC minutes suggest that the expansion of the Fed's balance sheet via asset purchases (most likely mortgage-backed securities) will be the way that the Fed stimulates.
When will it occur? As soon as September, but it could take until November for Ben to corral the cats he has been charged with leading.
© 2010 Mesirow Financial Holdings, Inc. ("Mesirow Financial"). All rights reserved.
The information in Diane Swonk's Fed Flash is the proprietary and copyrighted material (the "Copyrighted Material") of Mesirow Financial. The Copyrighted Material, or any portion thereof, may not be reproduced, retransmitted or submitted to any media outlet, or posted on any Web site aside from mesirowfinancial.com without the express written consent of Mesirow Financial. This information provided here in is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic or other decisions. The views expressed herein are those of the author and may not necessarily represent the views of Mesirow Financial, its operating businesses or other of its employees. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.
