FOMC Minutes: Inflate or Not Inflate; No Exit Strategy; Policy Commode

Minutes of the Federal Open Market Committee's August meeting contain some interesting detail that was not hinted at in the press release.

The great deleveraging continues, as fewer lenders make use of the Federal Reserve's expanded lending facilities:

The Federal Reserve's total assets were about unchanged, on balance, since the Committee met in June, remaining at approximately $2 trillion as the System's purchases of securities were essentially matched by a further decline in usage of the System's credit and liquidity facilities.

In related end-of-credit news, Fitch the other day reported a slight decline in credit card deadbeating:

U.S. consumer credit quality showed signs of life as credit card ABS chargeoffs declined last month, snapping a string of five consecutive record highs, according to the latest Credit Card Index results from Fitch Ratings.

The improvement comes as delinquencies stabilized further and other credit card ABS performance variables exhibited similar positive results. Despite the one-month improvement, most credit card ABS trusts remain pressured from a chargeoff perspective.

Back at the FOMC, there's an argument over whether the Fed should get into the market for adjustable-rate-mortgage backed securities:

Meeting participants again discussed the merits of including agency MBS backed by adjustable-rate mortgages (ARMs) in the Committee's MBS purchase program: Some thought it would be useful to include agency ARM MBS, noting that doing so could reduce the unusually large spreads between ARM rates and yields on similar-duration Treasury securities–spreads that were far larger than the comparable spreads on fixed-rate mortgages; others saw little potential benefit, given the small stock and limited issuance of ARM MBS, and were hesitant to involve the Federal Reserve in another market segment. The Committee made no decision on purchasing ARM MBS at this meeting.

The debate over the Fed's exit strategy is couched in intentionally obscure phrases like "Several participants noted the need to continue refining the Committee's strategy for an eventual withdrawal of policy accommodation." Does that mean those participants want to refine the strategy and withdraw, or were they making the argument to hold off on the withdrawal until the strategy is refined? 

Also, what is "policy accommodation?" Here's another reference to it, and here's Theories of Policy Accommodation—The Persistence of Inflation and Gradual Stabilizations by Jose De Gregorio, written in 1992 and still available from the IMF at a deflation-resistant price of $15 a pop.

Disappointingly, the minutes leave out the highlight of the August meeting, when a hapless security guard, alarmed by sounds of orgiastic screaming, entered the meeting room and was torn limb from limb by frenzied Fed revelers, who then mounted his head on a thyrsus.

And here's what passes for the deflation/inflation debate:

Most participants anticipated that substantial slack in resource utilization would lead to subdued and potentially declining wage and price inflation over the next few years; a few saw a risk of substantial disinflation. However, some pointed to the problems in measuring economic slack in real time, and several were skeptical that temporarily low levels of resource utilization would reduce inflation appreciably, given the loose empirical relationship of economic slack to inflation and the fact that the public did not appear to have reduced its expectations of inflation. Participants noted concerns among some analysts and business contacts that the sizable expansion of the Federal Reserve's balance sheet and large continuing federal budget deficits ultimately could lead to higher inflation if policies were not adjusted in a timely manner. To address these concerns, it would be important to continue communicating that the Federal Reserve has the tools and willingness to begin withdrawing monetary policy accommodation at the appropriate time to prevent any persistent increase in inflation.

There's more. Depending on appeals to the recent court ruling ordering the Fed to open its records, we may one day be getting something meatier than this whirlwind of double negatives, passive phrasings and unattributed opinions. Until then, remember that three out of five economists agree that this constitutes "frequent communication with the public" that "ensures Fed accountability."