Continental Capital Advisors, LLC July 23, 2010
Worrying Signs From The Federal Reserve Minutes
Last week, the Federal Reserve released the minutes of its Open Market Committee meeting thatconcluded on June 23.
Meeting participants were hopeful that the economic rebound wouldcontinue, yet a number of statements from the minutes highlight the slowdown in the US economy.Additionally, the Fed minutes note an increase in “fails to deliver” securities, which could signal thatthe limit of quantitative easing already has been reached because of a lack of liquid securities.The following excerpts from the minutes of the Federal Reserve’s Open Market Committee meetingdemonstrate that Federal Reserve members are aware of a slowdown in the economy:Economic data releases were mixed, on balance, over the intermeeting period, but marketparticipants were especially attentive to incoming information on the labor market--mostnotably, the private payroll figures in the employment report for May, which wereconsiderably weaker than investors expected. Those data, combined with heightenedconcerns about the global economic outlook stemming in part from Europe's sovereign debtproblems, contributed to a downward revision in the expected path of policy implied bymoney market futures rates.…While the recent data on production and spending were broadly in line with the staff'sexpectations, the pace of the expansion over the next year and a half was expected to besomewhat slower than previously predicted.…The implications of these less-favorable factors for U.S. economic activity appeared likelyto be only partly offset by lower interest rates on Treasury securities, other highly ratedsecurities, and mortgages, as well as by a lower price for crude oil. The staff still expectedthat the pace of economic activity through 2011 would be sufficient to reduce the existingmargins of economic slack, although the anticipated decline in the unemployment rate wassomewhat slower than in the previous projection.…In part as a result of the change in financial conditions, most participants revised downslightly their outlook for economic growth, and about one-half of the participants judged thebalance of risks to growth as having moved to the downside.…Indeed, data for the most recent month suggested that, with the expiration of thoseprovisions, home sales and starts had stepped down noticeably and could remain weak in thenear term; with lower demand and a continuing supply of foreclosed houses coming tomarket, participants judged that house prices were likely to remain flat or decline somewhatfurther in the near term.…The economic outlook had softened somewhat and a number of members saw the risks tothe outlook as having shifted to the downside. Nonetheless, all saw the economic expansion