June 2010	August 2010	Comments
Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually.	Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.	Shades down their views on production and labor.
Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.	Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.	Shades down their view on consumer spending.
Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.	Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.	Shades down their view on business spending on equipment and software.
Housing starts remain at a depressed level.	Housing starts remain at a depressed level.	No change.
Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months.	Bank lending has continued to contract.	Gives up the ?We?re fine, this is a foreign problem? idea.
Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.	Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.	Finally accepting that their forecasts were too optimistic.
With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.	Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.	Toots the ?At least inflation is low? horn.? Not a popular instrument at the moment.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.	The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.	No change.? Fed funds are useless at this point.
	To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.	New paragraph for quantitative easing, round 2.? Will invest maturing Treasuries, Agencies and Agency MBS in longer term Treasuries.? May be avoiding Agency MBS in order to stop problems with the rolls.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.	The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.	No change.? A meaningless statement.
In light of improved functioning of financial markets, the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.		Paragraph removed.? The programs are gone, leaving behind a legacy of increased moral hazard risks.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.	Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.	No change.
Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee?s flexibility to begin raising rates modestly.	Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee’s ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve’s holdings of longer-term securities at their current level was required to support a return to the Committee’s policy objectives.	Hoenig continues his dissent.? Thinks economy is improving, and that quantitative easing should roll off.
	1. The Open Market Desk will issue a technical note shortly after the statement providing operational details on how it will carry out these transactions.	Footnote added to QE paragraph.

Comments

• Adds new paragraph for quantitative easing, round 2.? Will invest maturing Treasuries, Agencies and Agency MBS in longer term Treasuries.
• Four months ago I wrote: The FOMC is overly optimistic on employment and housing issues.
• Now the weakness is evident.? Hope has given way to modest pessimism, as they have shaded virtually all of their views of economic strength down.
• Two months ago I wrote, ?Implicitly blaming the Eurozone is cheap, we have enough issues on our own for the weakness ? residential housing, commercial real estate, and over-indebted consumers.?
• Now they have given up that evasion, and continue to shade down their views.
• Hoenig still dissents; hasn?t gotten bored with it yet.? Fight on, Tom.
• The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.? As a result, the FOMC ain?t moving, absent increases in employment, or a US Dollar crisis.? Labor employment is the key metric.