The Federal Open Market Committee (FOMC) released the minutes of its June 22-23 meeting on Wednesday, July 14, along with economic projections from Federal Reserve Board members and Reserve Bank presidents.
FOMC members “agreed that it would be appropriate to maintain the target range of 0 to 1/4 percent for the federal funds rate,” as the “economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside.” They tempered that however, saying that, “economic expansion as likely to be strong enough to continue raising resource utilization, albeit more slowly than they had previously anticipated.” They also projected that inflation was “likely to stabilize.”
Minutes also noted an expectation of an increase in the equity risk premium as the FOMC staff estimated that the spread between the “expected real return” on the 10-year Treasury note and real return on equities over 10 years had widened from “its already elevated level.” That means that investors basically continue to demand more return for investing in equities relative to what is still considered the safest-haven investments, U.S. Treasury securities.
This comes on the heels of a record low yield–indicating a flight to quality–for the three-year Treasury note auctioned this week dated July 15. That security was auctioned at a discount, with a 1% coupon, and a yield of 1.55%. That’s three-year paper, not a three-month T-Bill.
The Minutes also say that the Federal Reserve conducted its first Senior Credit Officer Opinion Survey on Dealer Financing Terms, from May 24 to June 6. The officers “reported that the terms on which they provided credit remained tight relative to those at the end of 2006.”
The FOMC Minutes show that the economic forecasts were lowered a bit from the April projections: Real GDP for 2010 decreased to a range of 3.0 to 3.5, from 3.2 to 3.7, for 2010. Unemployment projections for 2010 were bumped up slightly, to a range of 9.2 to 9.5, from the April projection of 9.1 to 9.5. Core PCE inflation estimates were lowered from the April projection, to 0.8 to 1.0, from 0.9 to 1.2.
Comments? Please send them to [email protected]. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.