Fed Policy – Page 2 – The Aleph Blog

Just Don’t Invert the Yield Curve

Posted on 21 March 2018 by David Merkel

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Jerome Powell is not an economist, and as such, has the potential to try to remake the way the Fed does monetary policy.? Rather than hold onto outmoded ideas ideas like the Phillips Curve, which may have made sense when the US was a more insular economy, there are better ways to think of monetary policy from a structural standpoint of how financial firms work.

(Note: the Phillips Curve relies on a very simple assumption that goods and services price inflation stems from wage inflation, and that wage inflation occurs when domestic unemployment is low.? In a global economy, those relationships are broken when labor can be easily added from sources outside of the US.)

Financial firms tend to grow rapidly when the yield curve is steeply sloped.? Borrowing short and lending long is profitable, at least in the short-run.? This provides a lot of credit to the economy, which in the short-run, encourages growth, as businesses borrow to build supply, and consumers borrow, which temporarily boosts demand.

Financial firms tend to shrink?when the yield curve is flattish and certainly when negatively sloped.? Borrowing short and lending long is unprofitable, at least in the short-run.? This reduces credit to the economy, which in the short-run discourages growth, as businesses don’t borrow to build supply, and consumers borrow less, which temporarily reduces demand.

If there are misfinanced (too much short-term borrowing) or over-indebted areas of the economy, there can be considerable economic failure with a flat or inverted yield curve.? As I have said before, when the FOMC tightens without thinking about the financial economy, they keep tightening until something blows up, and then they loosen too much, starting the next cycle of over-borrowing.? I said this at RealMoney in 2006:

One more note: I believe gradualism is almost required in?Fed?tightening cycles in the present environment ? a lot more lending, financing, and derivatives trading gears off of short rates like three-month LIBOR, which correlates tightly with fed funds. To move the rate rapidly invites dislocating the markets, which the FOMC has shown itself capable of in the past. For example:

2000 ??Nasdaq

1997-98 ? Asia/Russia/LTCM, though that was a small move for the Fed

1994 ? Mortgages/Mexico

1989 ? Banks/Commercial Real Estate

1987 ? Stock Market

1984 ? Continental Illinois

Early ?80s ? LDC debt crisis

So it moves in baby steps, wondering if the next straw will break some camel?s back where lending has been going on terms that were too favorable. The odds of this 1/4% move creating such a nonlinear change is small, but not zero.

But on the bright side, the odds of a 50 basis point tightening at any point in the next year are even smaller. The markets can?t afford it.

Position:?None

I also commented that housing was likely to be the next blowup in a number of posts from that era.? Sadly, they are mostly lost because of a change in the way theStreet.com managed its file system.

As such, it behooves the Fed to avoid overly flattening the yield curve.? In late 2005, I wrote at RealMoney.com that the Fed should stop at 4%, and let the excess of the economy work themselves out.? By mid -2006, they raised the Fed Funds rate to 5.25%, flattening to invert the yield curve, which collapsed the leverage in the economy in a disorderly way.

It would have been better to stop at 4%, and watch for a while.? Housing prices had peaked, and I wrote about that at RealMoney.com as well.? The Fed could have been more gradual at that point.? There really wasn’t that much inflation, and the economy was not that strong.? Bernanke may have felt that he needed to prove that he wasn’t a dove on inflation.? Who knows?? The error was unforced, and stemmed from prior bad practices.

In this case, the Fed does have an alternative to crashing the economy again.? I would encourage the FOMC to not raise rates over 2.5%.? When they get to 2.5%, they should start selling the longest bonds in their portfolio (note: I would encourage them to end balance sheet disclosure before they do this, after all, the Fed suffers from too much communication not too little.? The Fed was better managed under Volcker and Martin.)

This would test the resilience of the economic expansion, and if the economy keeps growing as long bonds rise in yield, then match the rises in long yields with rises in the Fed Funds rate.? This is a neo-Wicksellian method of managing monetary policy that could match the ideas of Jerome Powell, who was more skeptical than most Fed Governors about about Quantitative Easing [QE].

The eventual goal is to manage monetary policy aiming for a yield curve that has a low positive slope, allowing the banks to make a little money, but not a lot.? The economy would expand moderately, and not be as prone to booms and busts.

My summary advice for the FOMC would be this: before you flatten/invert the yield curve, start selling all of the long MBS and Treasury bonds with average maturities longer than 10 years.? That will slow down the economy more effectively than flattening the yield curve, and it is not as likely to lead to a crisis.

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I have no illusions — the odds of the FOMC doing this is remote.? But given past failures, isn’t a new idea worthy of consideration?

PS — there is another factor here.? What happens to the financing costs of the profligate US government?

Surprise! Return to RT Boom/Bust

Posted on 1 March 2018 by David Merkel

After almost three years, I returned to RT Boom/Bust on Tuesday.? There are many changes at RT.? Many new people, and a growing effort to put together an alternative channel that covers the world rather than just the US or just the developed world.? They are bursting at the seams, and their funding has doubled, so I was told.

I get surprised by who watches RT and sees me.? My? congregation is pretty conservative in every way, but I have some friends working in intelligence come up to me and say, “Hey, saw you on RT Boom/Bust.”? And then there is my friend from Central Africa who says, “The CIA has you on their list.? Watch out!”? He’s funny, hard-working, but very earnest.

I’ve never seen anything in what I have done where there is any hint of editorial control.? Maybe it is there, but I think I would be smart enough to see it.

Anyway, the topic at hand was alternative monetary systems, and the thing that kicked it off was the Vollgelt in Switzerland, where they are trying to create a monetary system where the banks can’t lend against deposits.? Here were my notes for the show, with a little more to fill in:

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Mr. Merkel, what exactly is a sovereign money system?

The banks can?t lend against deposits.? Deposits are segregated, and wait for the depositor to use them.? The deposits no longer can be used by the bank but only the depositor.? There would be no need for deposit insurance, because deposits are off of the bank?s balance sheet.

What is the difference between a sovereign system and the way banks handle your money now?

You would have to pay for your transactional account, because the bank can?t make money off of lending against the deposits. Banks would no longer do ?maturity transformation? by lending long against short-term deposits.? Long-term lending would have to be other entities in the economy, such as insurance companies, pension funds, endowments, private individuals, foreign lenders, mortgage REITs, and banks funded by matching sources like CDs, bonds, and equity.

Switzerland is poised to vote on a sovereign money system, or Vollgeld in German. How likely is this vote to pass?

Not likely for three reasons.? First, the Swiss turned down a proposal to back the Swiss Franc with 20% gold.? Not one canton voted for it.? Only 22% of the electorate voted for it.? Second, things aren?t that bad now, and the financial system isn?t that levered.? ?If it ain?t broke, don?t fix it.?? Third, this is a total experiment with no real world precedents.? Many criticize economists for imagining what the world should be like and then proposing policy off their unrealistic idealized models.? This is another example of that.? We don?t know what the unintended consequences might be.

Some unintended consequences might be:

Transition would be difficult
Recession during the transition, because middle and small market lending would likely suffer
Pay for transactional accounts ? no interest even if inflation is high.
Increase in savings accounts, which might be short-dated enough to be transactional
Gives a lot of power to the SNB, which might be halfhearted about implementation (Regulators dislike change, and risk).
Could be subverted if Government becomes dependent on free money, leading to inflation
Moves monetary policy from rate targeting to permanent quantitative monetary adjustment. Unclear how the SNB would tighten policy; maybe issue central bank bonds to reduce money supply?

Could something like this rein in credit bubbles? Are we facing another credit bubble?

Yes, it could.? Most credit bubbles result from short-term lending funding long-term assets.? This would rein it in, in the short-run, but who could tell whether it might come back in another unintended way?? If some new class of lender became dominant, the threat could reappear.

We aren?t facing a credit bubble now, because the last crisis wiped away a lot of private debt, and replaced it with public debt.? Perhaps some weak nations with debts not in their own currency could be at risk, but right now, there aren?t any categories of private debt big enough and misfinanced enough to create a crisis.? That said, watch margin loans, student loans, and auto loans in the US.

Are there any modern day equivalents we can compare Vollgeld to?

None that are currently being used.? There are a lot of theoretical ideas still being tossed around, like 100% reserving, lowering bank leverage, strict asset-liability matching, disallowing banks from lending to financial companies, etc.? These ideas get a lot of press after crises, but fade away afterward.? Most of them would work, but all of them lower bank profits.? Concentrated interests tend to win against general interests, except in crises.

You mentioned there is a similar concept for derivatives that no one is talking about. How exactly would that work?

Derivatives are functionally equivalent to insurance contracts, but they are not regulated.? I believe they should be regulated like insurance contracts, and require that those seeking insurance have an ?insurable interest? that they are trying to hedge.? Only direct hedgers could initiate derivative transactions, and financial guaranty insurers would compete to fill the need.

This would prevent the unintended consequences of having multiples of protection written on a given risk, where a weak party like AIG is incapable of making good on all of the derivative contracts that they have written, which could lead to its own systemic risk if other derivative counterparties can?t absorb the losses.

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I know that is over-simplified, but I read through the papers of both sides in the debate, and I thought both overstated their cases significantly.

I know fiat money has its problems, and so does fractional reserve banking, but if you are going to propose a solution, perhaps one that fits the basics of how a well-run bank at low leverage would work would be a good place to start.

Redacted Version of the September 2017 FOMC Statement

Posted on 20 September 2017 by David Merkel

Comments

Labor conditions can?t get much better. GDP is meandering.
The yield curve is flattening, with short rates rising more than long rates.
Stocks, bonds and gold fall a little. Though the statement doesn?t say it, many conclude that tightening will continue.
I think the Fed is too optimistic about the economy. I also think that they won?t get far into letting securities mature before they resume reinvestment.

The Crisis at the Tipping Point

Posted on 9 August 20179 August 2017 by David Merkel

Photo Credit: Fabio Tinelli Roncalli || Alas, there were so many signs that the avalanche was coming…

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Ten years ago, things were mostly quiet. ?The crisis was staring us in the face, with a little more than a year before the effects of growing leverage and sloppy credit underwriting would hit in full. ?But when there is a boom, almost no one wants to spoil the party. ?Yes a few bears and financial writers may do so, but they get ignored by the broader media, the politicians, the regulators, the bulls, etc.

It’s not as if there weren’t some hints before this. ?There were losses from subprime mortgages at HSBC. ?New Century was bankrupt. ?Two hedge funds at Bear Stearns, filled with some of the worst exposures to CDOs and subprime lending were wiped out.

And, for those watching the subprime lending markets the losses had been rising since late 2006. ?I was following it for a firm that was considering doing the “big short” but could not figure out an effective way to do it in a way consistent with the culture and personnel of the firm. ?We had discussions with a number of investment banks, and it seemed obvious that those on the short side of the trade would eventually win. ?I even wrote an article on it at RealMoney in November 2006, but it is lost in the bowels of theStreet.com’s file system.

Some of the building blocks of the crisis were evident then:

European banks in search of any AAA-rated structured product bonds that had spreads over LIBOR. ?They were even engaged in a variety of leverage schemes including leveraged AAA CMBS, and CPDOs. ?When you don’t have to put up any capital against AAA assets, it is astounding the lengths that market players will go through to create and swallow such assets. ?The European bank yield hogs were a main facilitator of the crisis that was to come, followed by the investment banks, and bullish mortgage hedge funds. ?As Gary Gorton would later point out, real disasters happen when safe assets fail.
Speculation was rampant almost everywhere. (not just subprime)
Regulators were unwilling to clamp down on bad underwriting, and they had the power to do so, but were unwilling, as banks could choose their regulators, and the Fed didn’t care, and may have actively inhibited scrutiny.
Not only were subprime loans low in credit quality, but they had a second embedded risk in them, as they had a reset date where the interest rate would rise dramatically, that made the loans far shorter than the houses that they financed, meaning that the loans would disproportionately default near their reset dates.
The illiquidity of the securitized Subprime Residential Mortgage ABS highlighted the slowness of pricing signals, as matrix pricing was slow to pick up the decay in value, given the sparseness of trades.
By August 2007, it was obvious that residential real estate prices were falling across the US. ?(I flagged the peak at RealMoney in October 2005, but this also is lost…)
Amid all of this, the “big short” was not a sure thing as those that entered into it had to feed the trade before it succeeded. ?For many, if the crisis had delayed one more year, many taking on the “big short” would have lost.
A variety of levered market-neutral equity hedge funds were running into trouble in August 2007 as they all pursued similar Value plus Momentum strategies, and as some fund liquidated, a self reinforcing panic ensued.
Fannie and Freddie were too levered, and could not survive a continued fall in housing prices. ?Same for AIG, and most investment banks.
Jumbo lending, Alt-A lending and traditional mortgage lending had the same problems as subprime, just in a smaller way — but there was so much more of them.
Oh, and don’t forget hidden leverage at the banks through ABCP conduits that were off balance sheet.
Dare we mention the Fed inverting the yield curve?

So by the time that BNP Paribas announced that three of their funds that bought?Subprime Residential Mortgage ABS had pricing issues, and briefly closed off redemptions, and Countrywide announced that it had to “shore up its funding,” there were many things in play that would eventually lead to the crisis that happened.

Some of us saw it in part, and hoped that things would be better. ?Fewer of us saw a lot of it, and took modest actions for protection. ?I was in that bucket; I never thought it would be as large as it turned out. ?Almost no one saw the whole thing coming, and those that did could not dream of the response of the central banks that would take much of the losses out of the pockets of savers, leaving bad lending institutions intact.

All in all, the crisis had a lot of red lights flashing in advance of its occurrence. ?Though many things have been repaired, there are a lot of people whose lives were practically ruined by their own greed, and the greed of others. ?It’s a sad story, but one that will hopefully make us more careful in the future when private leverage rises, creating an asset bubble.

But if I know mankind, the lesson will not be learned.

PS — this is what I wrote one decade ago. ?You can see what I knew at the time — a lot of the above, but could not see how bad it would be.

Redacted Version of the July 2017 FOMC Statement

Posted on 26 July 201730 July 2017 by David Merkel

Photo Credit: Leo Newball, Jr. || I visited that building when I was 24.

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Comments

Labor conditions are reasonably good. GDP is meandering.
The yield curve is flattening, with long rates falling.
Stocks, bonds and gold rise a little.
I think the Fed is too optimistic about the economy. I also think that they won?t get far into letting securities mature before they resume?reinvestment of maturing bonds. [miswrote that last time]

Redacted Version of the June 2017 FOMC Statement

Posted on 14 June 2017 by David Merkel

Comments

Labor conditions are reasonably good. GDP might be improving.
The yield curve is flattening, with long rates falling.
Stocks and gold fall. Bonds rose this morning and remain up.
I think the Fed is too optimistic about the economy. I also think that they won?t get far into letting securities mature before they stop reinvestment.
Interesting that they dropped the statement about following global financial conditions.

The Permanent Portfolio

Posted on 19 March 2017 by David Merkel

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I will admit, when I first read about the Permanent Portfolio in the late-80s, I was somewhat skeptical, but not totally dismissive.? Here is the classic Permanent Portfolio, equal proportions of:

S&P 500 stocks
The longest Treasury Bonds
Spot Gold
Money market funds

Think about Inflation, how do these assets do?

S&P 500 stocks ? mediocre to pretty good
The longest Treasury Bonds ? craters
Spot Gold ? soars
Money market funds ? keeps value, earns income

Think about Deflation, how do these assets do?

S&P 500 stocks ? pretty poor to pretty good
The longest Treasury Bonds ? soars
Spot Gold ? craters
Money market funds ? makes a modest amount, loses nothing

Long bonds and gold are volatile, but they are definitely negatively correlated in the long run.? The Permanent Portfolio concept attempts to balance the effects of inflation and deflation, and capture returns from the overshooting that these four asset classes do.

What did I do?

I got the returns data from 12/31/69 to 9/30/2011 on gold, T-bonds, T-bills, and stocks.? I created a hypothetical portfolio that started with 25% in each, rebalancing to 25% in each whenever an asset got to be more than 27.5% or less than 22.5% of the portfolio.? This was the only rebalancing strategy that I tested.? I did not do multiple tests and pick the best one, because that would induce more hindsight bias, where I torture the data to make it confess what I want.

I used a 10% band around 25% ( 22.5%-27.5%) figuring that it would rebalance the portfolio with moderate frequency.? Over the 566 months of the study, it rebalanced 102?times. ?At the top of this article is a graphical summary of the results.

The smooth-ish gold line in the middle is the Permanent Portfolio.? Frankly, I was surprised at how well it did.? It did so well, that I decided to ask, what if we drop out the T-bills in order to leverage the idea.? It improves the returns by 1%, but kicks up the 12-month drawdown by 7%.? Probably not a good tradeoff, but pretty amazing that it beats stocks with lower than bond drawdowns. ?That’s the light brown line.

Results	S&P TR	Bond TR	T-bill TR	Gold TR	PP TR	PP TR levered
Annualized Return	10.40%	8.38%	4.77%	7.82%	8.80%	9.93%
Max 12-mo drawdown	-43.32%	-22.66%	0.02%	-35.07%	-7.65%	-14.75%

Now the above calculations assume no fees.? If you decide to implement it using SPY, TLT, SHY and GLD, (or something similar) there will be some modest level of fees, and commission costs.

?What Could Go Wrong

Now, what could go wrong with an analysis like this?? The first point is that the history could be unusual, and not be indicative of the future.? What was unusual about the period 1970-2017?

Went off the gold standard; individual holding of gold legalized.
High level of gold appreciation was historically abnormal.
Deregulation of money markets allowed greater volatility in short-term rates.
ZIRP crushed money market rates.
Federal Reserve micro-management of short-term rates led to undue certainty in the markets over the efficacy of monetary policy ? ?The Great Moderation.?
Volcker era interest rates were abnormal, but necessary to squeeze out inflation.
Low long Treasury rates today are abnormal, partially due to fear, and abnormal Fed policy.
Thus it would be unusual to see a lot more performance out of long Treasuries. The stellar returns of the past can?t be repeated.
Three hard falls in the stock market 1973-4, 2000-2, 2007-9, each with a comeback.
By the end of the period, profit margins for stocks were abnormally high, and overvaluations are significant.

But maybe the way to view the abnormalities of the period as being ?tests? of the strategy.? If it can survive this many tests, perhaps it can survive the unknown tests of the future.

Other risks, however unlikely, include:

Holding gold could be made illegal again.
The T-bills and T-bonds have only one creditor, the US Government. Are there scenarios where they might default for political reasons?? I think in most scenarios bondholders get paid, but who can tell?
Stock markets can close for protracted periods of time; in principle, public corporations could be made illegal, as they are statutory creations.
The US as a society could become less creative & productive, leading to malaise in its markets. Think of how promising Argentina was 100 years ago.

But if risks this severe happen, almost no investment strategy will be any good.? If the US isn?t a desirable place to live, what other area of the world would be?? And how difficult would it be to transfer assets there?

Summary

The Permanent Portfolio strategy is about as promising as any that I have seen for preserving the value of assets through a wide number of macroeconomic scenarios.? The volatility is low enough that almost anyone could maintain it.? Finally, it?s pretty simple.? Makes me want to consider what sort of product could be made out of this.

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Back to the Present

I delayed on posting this for a while — the original work was done five years ago. ?In that time, there has been a decent amount of digital ink spilled on the Permanent Portfolio idea of Harry Browne’s. ?I have two pieces written:?Permanent Asset Allocation, and?Can the ?Permanent Portfolio? Work Today?

Part of the recent doubt on the concept has come from three sources:

Zero Interest rate policy [ZIRP] since late 2008, (6.8%/yr PP return)
The fall in Gold since late 2012 (2.7%/yr PP return), and
The fall in T-bonds in since mid-2016 (-4.7%?annualized PP return).

Out of 46 calendar years, the strategy makes money in 41 of them, and loses money in 5 with the losses being small: 1.0% (2008), 1.9% (1994), 2.2% (2013), 3.6% (2015), and 4.5% (1981). ?I don’t know about what other people think, but there might be a market for a strategy that loses ~2.6% 11% of the time, and makes 9%+?89% of the time.

Here’s the thing, though — just because it succeeded in the past does not mean it will in the future. ?There is a decent theory behind the Permanent Portfolio, but can it survive highly priced bonds and stocks? ?My guess is yes.

Scenarios: 1) inflation runs, and the Fed falls behind the curve — cash and gold do well, bonds tank, and stocks muddle. ?2) Growth stalls, and so does the Fed: bonds rally, cash and stocks muddle, and gold follows the course of inflation. 3) Growth runs, and the Fed swarms with hawks. Cash does well, and the rest muddle.

It’s hard, almost impossible to make them all do badly at the same time. ?They react differently to?changes in the macro-economy.

Upshot

There are a lot of modified permanent portfolio ideas out there, most of which have done worse than the pure strategy. ?This permanent portfolio strategy?would be relatively pure. ?I’m toying with the idea of a lower minimum ($25,000) separate account that would hold four funds and rebalance as stated above, with fees of 0.2% over the ETF fees. ?To minimize taxes, high cost tax lots would be sold first. ?My question is would there be interest for something like this? ?I would be using a better set of ETFs than the ones that I listed above.

I write this, knowing that I was disappointed when I started out with my equity management. ?Many indicated interest; few carried through. ?Small accounts and a low fee structure do not add up to a scalable model unless two things happen: 1) enough accounts want it, and 2) all reporting services are provided by Interactive Brokers.

Closing

Besides, anyone could do the rebalancing strategy. ?It’s not rocket science. ?There are enough decent ETFs to use. ?Would anyone truly want to pay 0.2%/yr on assets to have someone select the funds and do the rebalancing for him? ?I wouldn’t.

Redacted Version of the March 2017 FOMC Statement

Posted on 15 March 2017 by David Merkel

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Comments

2% inflation arrives, and the FOMC tightens another notch.
They are probably behind the curve.
The economy is growing well now, and in general, those who want to work can find work.
The change of the FOMC?s view is that inflation is higher. Equities and bonds rise. Commodity prices rise and the dollar weakens.
The FOMC says that any future change to policy is contingent on almost everything.

Yield = Poison (3)

Posted on 7 February 2017 by David Merkel

Photo Credit: Brent Moore || Watch the piggies run after scarce yield!

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If you do remember the first time I wrote about yield being poison,?you are unusual, because it was the first real post at Aleph Blog. ?A very small post — kinda cute, I think when I look at it from almost ten years ago… and prescient for its time, because a lot of risky bonds were about to lose value (in 19 months), aside from the highest quality bonds.

I decided to write this article this night because I decided to run my bond momentum model — low and behold, it yelled at me that everyone is grabbing for yield through credit risk, predominantly corporate and emerging markets, with a special love for bank debt closed end funds.

I get the idea — short rates are going to rise because the Fed is tightening and inflation is rising globally, and there is no credit risk anymore because economic growth is accelerating globally — it’s not just a US/Trump thing. ?I just have a harder time playing the game because we are in the wrong phase of the credit cycle — profit growth is nonexistent, and debts are growing.

I have a few other concerns as well. ?Even if encouraging exports and discouraging imports aids the US economy for a while (though I doubt it — more jobs rely on exports than are lost by imports, what if there is retaliation?) there is a corresponding opposite impact on the capital account — less reinvestment in the US. ?We could see higher yields…

Charles Gave:THE END OF THE DOLLAR STANDARD https://t.co/WZxUWX15SN I have wondered the same: Won’t Trump’s policies undo USD standard? $$

? David Merkel (@AlephBlog) February 4, 2017

That said, I would be more bearish on the US Dollar if it had some real competition. ?All of the major currencies have issues. ?Gold, anyone? ?Low short rates and rising inflation are the ideal for gold. ?Watch the real cost of carry go more negative, and you get paid (sort of) for holding gold.

If growth and inflation?persist globally (consider some of the work @soberlook has ?been doing at The WSJ Daily Shot — a new favorite of mine, even his posts are?too big) then almost no bonds except the shortest bonds will be any good in the intermediate-term — back to the ’70s phrase “certificates of confiscation.” ?One other effect that could go this way — if the portion of Dodd-Frank affecting bank leverage is repealed, the banks will have a much greater ability to lend overnight, which would be inflationary. ?Of course, they could just pay special dividends, but most corporations lean toward growing the business, unless they are disciplined capital allocators.

As Trump Team Enters Office, Repealing Dodd-Frank Could Have Inflationary Risks https://t.co/RCMcV5ksdv I talk about excess bank capital $$

? David Merkel (@AlephBlog) January 13, 2017

But it is not assured that the current growth and inflation will persist. ?M2 Monetary velocity is still low, and the long end of the yield curve does not have yield enough priced in for additional growth and inflation. ?Either long bonds are a raving sell, or the long end is telling us we are facing a colossal fake-out in the midst of too much leverage globally.

Summary

I’m going to stay high quality and short for now, but I will be watching for the current trends to break. ?I may leg into some long Treasuries, and maybe some foreign bonds. ?Gold looks interesting, but I don’t think I am going there. ?I’m not making any big moves in the short run — safe and short feels pretty good for the?bond portfolios that I manage. ?I think it’s a time to preserve principal — there is more credit risk than the market is pricing in. ?It might take a year or two to get there, or it might be next month… I would simply say stay flexible and look for a time where you have better opportunities. ?There is no fat pitch at present for long only investors like me.

Postscript

To those playing with fire buying dividend paying common stocks, preferred stocks, MLPs, etc. for yield — if we hit a period where credit risk becomes obvious — all of your “yield plays” will behave like stocks in a poisoned sector. ?There could be significant dividend cuts. ?Dividends are not guaranteed like bonds — bonds must pay or it is bankruptcy. ?Managements avoid defaulting on their bonds and loans, but will not hesitate to cut or not pay dividends in a crisis — it is self-preservation, at least in the short-run. ?Even if they get replaced by angry shareholders, the management typically gets some sort of parachute if the company survives, and far less in bankruptcy.

One final note on this point — stocks that have a lot of yield buyers behave more like bonds. ?If bond yields rise above current stock earnings yields, the stock prices will fall to reprice the yield of the stock, even if there is no bankruptcy risk.

And, if you say you can hold on and enjoy the rising dividends of your high quality companies? ?Accidents happen, the same way they did to some people who bought houses in the middle of the last decade. ?Many could not ride out the crisis because of some life event. ?Make sure you have a margin of safety. ?In a really large crisis, the return on risk assets may look decent from ten years before to ten years after, but a lot of people get surprised by their need to draw on those assets at the wrong moment — bad events come in bunches, when the credit cycle goes bust. Be careful, and don’t reach for yield.

Redacted Version of the February 2017 FOMC Statement

Posted on 3 February 2017 by David Merkel

Photo Credit: eflon?|| Ask to visit the Medieval dining hall! ?Really!

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Comments

The FOMC holds, but deludes itself that it is still accommodative.
The economy is growing well now, and in general, those who want to work can find work.
Maybe policy should be tighter. The key question to me is whether lower leverage at the banks was a reason for ultra-loose policy.
The change of the FOMC?s view is that inflation is higher. Equities are stable and bonds fall a little. Commodity prices rise and the dollar weakens.
The FOMC says that any future change to policy is contingent on almost everything.

The global economy is growing, inflation is rising globally, the dollar is rising, and the 30-year Treasury has not moved all that much relative to all of that. ?My guess is that the FOMC could get the Fed funds rate up to 2% if they want to invert the yield curve. ?A rising dollar will slow the economy and inflation somewhat.

Aside from that, I am looking for what might blow up. ?Maybe some country borrowing too much in dollars? ?Tightening cycles almost always end with a bang.

July 2017	September 2017	Comments
Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.	Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.	No change.? Feels like GDP is slowing, though.
Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined.	Job gains have remained solid in recent months, and the unemployment rate has stayed low.	Shades labor conditions down, as improvement has seemingly stopped.
Household spending and business fixed investment have continued to expand.	Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.	Shades business fixed investment up.? Does that matter as much in an intangible economy?
On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent.	On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent.	Small change of timing.? It?s not much below 2%…
Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.	Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.	No change
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	The Dual Mandate is the perfect shield to hide behind.? The Fed can be wrong, but it can never be blamed.
The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.	Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.	Mentions the transitory effects of hurricanes.? Aside from that, they think they are on track.
Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.	Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.	No change.? Note the unbalanced language, though ? they are only monitoring inflation closely.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent.	In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent.	No change.
The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.	The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.	No change, but monetary policy is no longer accommodative.? The short end of the forward curve continues to rise, and the curve flattens.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.	In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.	No change
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.	This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.	No change.? If you don?t know what will drive decision-making, i.e., it could be anything, just say that.
The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.	The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.	No change. Symmetric: we can?t let inflation get too low, because we don?t regulate banks properly.
The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.	The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.	No change
However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.	However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.	No change
For the time being, the Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.		Deleted; QE is over (for now).
The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated; this program is described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.	In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.	Promises the very slow end of QE, as they may start to let securities mature.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.	Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.	No dissents; it?s relatively easy to agree with doing nothing.

June 2017	July 2017	Comments
Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.	Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.	No change.? Feels like GDP is slowing, though.
Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined.	Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined.	Shades labor conditions up
Household spending has picked up in recent months, and business fixed investment has continued to expand.	Household spending and business fixed investment have continued to expand.	No real change
On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent.	On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent.	Changes, but to little effect.
Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.	Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.	No change
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	No change; somebody tell them that things that can?t change don?t belong here.
The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.	The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.	No change; monetary policy solves all.
Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.	Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.	No change.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent.	In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent.	No change.
The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.	The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.	No change, but monetary policy is no longer accommodative.? The short end of the forward curve continues to rise, and the curve flattens.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.	In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.	No change
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.	This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.	No change.? If you don?t know what will drive decision-making, i.e., it could be anything, just say that.
The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.	The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.	No change. Symmetric: we can?t let inflation get too low, because we don?t regulate banks properly.
The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.	The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.	No change
However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.	However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.	No change
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.	For the time being, the Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.	No change
The Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.	The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated;	Accelerates the timing of change.
This program, which would gradually reduce the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments from those securities, is described in the accompanying addendum to the Committee’s Policy Normalization Principles and Plans.	this program is described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.	Promises the slow end of QE, as they may start to let securities mature.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; and Jerome H. Powell.	Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.	No dissents; it?s relatively easy to agree with doing nothing.
Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.		No dissents.

May 2017	June 2017	Comments
Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed.	Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.	Shades GDP up
Job gains were solid, on average, in recent months, and the unemployment rate declined.	Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined.	Shades labor conditions down
Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid.? Business fixed investment firmed.	Household spending has picked up in recent months, and business fixed investment has continued to expand.	Shades up household spending and business fixed investment
Inflation measured on a 12-month basis recently has been running close to the Committee’s 2 percent longer-run objective. Excluding energy and food, consumer prices declined in March and inflation continued to run somewhat below 2 percent.	On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent.	Shades inflation down.
Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.	Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.	No Change
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	No Change
The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term.	The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.	Inflation down, growth up
Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.	Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.	Watches inflation closely, no longer looking at the rest of the world.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 3/4 to 1 percent.	In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent.	Raises the Fed funds target range 1/4 percent.
The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.	The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.	No Change
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.	In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.	No Change
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.	This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.	No Change
The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.	The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.	No Change
The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.	The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.	No Change
However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.	However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.	No Change
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction,	The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.	No Change
and it anticipates doing so until normalization of the level of the federal funds rate is well under way.	The Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.	I guess the low 1% region is what is considered the low end of a normal federal funds rate.
This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.	This program, which would gradually reduce the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments from those securities, is described in the accompanying addendum to the Committee’s Policy Normalization Principles and Plans.	Promises the slow end of QE, as they may start to let securities mature.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.	Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; and Jerome H. Powell.	All but one follow through on the idea that tightening is needed.
	Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.	Kashkari is a quirky guy.? Who knows?? Maybe he notes the flattening yield curve.

February 2017	March 2017	Comments
Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace.	Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace.	No real change.
Job gains remained solid and the unemployment rate stayed near its recent low.	Job gains remained solid and the unemployment rate was little changed in recent months.	No real change.
Household spending has continued to rise moderately while business fixed investment has remained soft.	Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat.	Shades up business fixed investment.
Measures of consumer and business sentiment have improved of late.		That sentence lasted for one statement.
Inflation increased in recent quarters but is still below the Committee’s 2 percent longer-run objective.	Inflation has increased in recent quarters, moving close to the Committee’s 2 percent longer-run objective; excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 percent.	Shades their view of inflation up. Excluding two categories that have had high though variable inflation rates is bogus. Use a trimmed mean or the median.
Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.	Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.	No change. What would be a high number, pray tell?? TIPS are showing higher inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.15%, unchanged from February.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	No change. Any time they mention the ?statutory mandate,? it is to excuse bad policy. But don?t blame the Fed, blame Congress.
The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will rise to 2 percent over the medium term.	The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term.	No real change. CPI is at +2.8%, yoy.? Seems to be rising quickly.
Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.	Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.	No change.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent.	In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent.	Kicks the Fed Funds rate up ?%.
The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.	The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.	Suggests that they are waiting to see 2% inflation for a while before making changes. They don?t get that policy direction, not position, is what makes policy accommodative or restrictive.? Think of monetary policy as a drug for which a tolerance gets built up.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.	In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.	No change.
This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.	This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.	No change.? Gives the FOMC flexibility in decision-making, because they really don?t know what matters, and whether they can truly do anything with monetary policy.
In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal.	The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.	Now that inflation is 2%, they have to decide how much they are willing to let it run before they tighten with vigor.
The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.	The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.	No change.? Says that they will go slowly, and react to new data.? Big surprises, those.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.	The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.	No change.? Says it will keep reinvesting maturing proceeds of treasury, agency debt and MBS, which blunts any tightening.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Jerome H. Powell; and Daniel K. Tarullo.	Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Daniel K. Tarullo.	Large agreement.
	Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.	Kashkari willing to be the lone dove amid rising inflation.? I wonder if he is thinking about systemic issues?