Frontrunning the FOMC: November

The Big Picture has a pretty right-on guess as to what the Fed had to say amongst themselves, so don't expect any bombshells at 2:15, it's merely nuance:

As the FOMC begins their 2 day meeting, the key focus I believe is whether they leave in the word “exceptionally” in describing the low levels of the fed funds rate that will exist for an “extended period.”

That would actually be a great job, playing magnetic poetry with the FOMC statement every month to make a statement. This one won't be anything special.


Federal Reserve officials may today indicate their $1 trillion injection into the economy is helping to revive growth without requiring an increase in interest rates from near zero, economists said.

Policy makers will probably maintain their commitment to keeping rates low for an “extended period,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. They may also start a discussion about altering the wording of their policy statement, to leave them more leeway to signal a change in the future.

Chairman Ben S. Bernanke and his colleagues are reluctant to raise rates until the labor market shows signs of recovery, even though a report last week showed the economy resumed growth after 12 months of contraction. The Fed isn’t yet willing to signal that it’s ready to join central banks in Australia, Norway and Israel in pushing borrowing costs higher.

“They’ve got, for a lot of reasons, to say that it looks like what we’ve been doing has been working,” said former Atlanta Fed research director Robert Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey. “But if they’re too exuberant about it, it’s going to trigger expectations of a policy move quicker than perhaps they might like to do.”

Oh really?


Prices of longer-dated Treasurys fell Tuesday afternoon as investors prepared for details of another bout of record-sized debt supply and the outcome of the Federal Reserve monetary policy meeting.

The Treasury Department is scheduled to release Wednesday morning the amount of next week's auctions in three-year notes, 10-year notes and 30-year bonds, part of the government's refunding announcement for the fourth quarter.

Many market participants including Ward McCarthy, chief financial economist within the fixed income group at Jefferies & Co., and James Caron, head of interest-rate strategy at Morgan Stanley in New York, expected $1 billion increase in three-year notes and $2 billion each for the 10-year and 30-year maturities.

That would push the offering sizes to $40 billion for the three-year notes, $25 billion for the 10-year notes and $17 billion for the 30-year bonds. The estimated total would be $82 billion, smashing a record $75 billion in the previous quarterly refunding sales in August.

By raising the auction size more significantly for long-dated Treasurys, the government aimed to lengthen the average maturity of its debt supply, making it easier to roll over matured debt, market participants said. It could also allow the government to take advantage of the relatively low bond yields at the moment to reduce their long-term funding costs, they said.

The Treasury could announce it will replace 20-year Treasury inflation-protected securities, or TIPS, with 30-year maturities. The government already has said it will gradually lift the size of the TIPS auctions to improve its debt management and ensure smooth funding operations.

Let's play quiz the economist here: Can one of you tell me what in the hell incentive the Fed has to pull the plug right now?

Who wants to put $20 on who said no more mortgage backed securities? I'm sure a few chronic JDA refreshers know exactly what I'm talking about. Come on, let's start a pool. Oh wait, you can't gamble, sorry.

Anyway, nothing to see here and I actually mean it.

Jr Deputy Accountant reminds you here that Fed minutes are on greater lockdown than the nuke codes at this point.

Executive Order No. 12958 Classified National Security Information (April 1995):

This order prescribes a uniform system for classifying, safeguarding, and declassifying national security information. Our democratic principles require that the American people be informed of the activities of their Government. Also, our Nation's progress depends on the free flow of information. Nevertheless, throughout our history, the national interest has required that certain information be maintained in confidence in order to protect our citizens, our democratic institutions, and our participation within the community of nations. Protecting information critical to our Nation's security remains a priority. In recent years, however, dramatic changes have altered, although not eliminated, the national security threats that we confront. These changes provide a greater opportunity to emphasize our commitment to open Government.

In the interest of "open" government let's talk about what isn't open at all and you'll never get your grubby little paws on:

(1) Classified Information means information that is classified for national security purposes under Executive Order No. 12958, entitled “Classified National Security Information,” including any amendments or superseding orders that the President of the United States may issue from time to time.

(2) Confidential Supervisory Information means confidential supervisory information of the Board, as defined in 12 CFR 261.2(c). Three internal security designations, which are subject to change by the Board, apply to Confidential Supervisory Information.

Those designations are:

(i) Restricted-Controlled FR generally applies to information that, if disclosed to or modified by unauthorized individuals, might result in the risk of serious monetary loss, serious productivity loss or serious embarrassment to the Federal Reserve System. Examples of Confidential Supervisory Information designated as Restricted-Controlled FR include, but are not limited to, certain significant lists of financial institution supervisory ratings and nonpublic advance information regarding bank mergers or failures.

(ii) Restricted FR covers information that is less sensitive than Restricted-Controlled FR information and, in general, is the largest category of Confidential Supervisory Information. This information, if disclosed to or modified by unauthorized individuals, might result in the risk of significant monetary loss, significant productivity loss, or significant embarrassment to the Federal Reserve System. Examples of Confidential Supervisory Information designated as Restricted FR include, but are not limited to, single supervisory ratings (e.g., CAMELS, BOPEC, etc.), Federal Reserve examination and inspection reports and workpapers, Interagency Country Exposure Review Committee (ICERC) country exposure determinations, and shared national credit data or listings.

(iii) Internal FR covers information that is less sensitive than Restricted FR or Restricted-Controlled FR and generally applies to information that, if disclosed to or modified by unauthorized individuals, might result in the risk of some monetary loss, some productivity loss, or some embarrassment to the Federal Reserve System. Examples of Confidential Supervisory Information designated as Internal FR include, but are not limited to, foreign banking organization country studies and Federal Reserve risk assessments.

Technically they were talking about their "equal opportunity" initiative but you get the idea. Forget about it, it's like the Andromeda Strain over there, foreign PhDs can get the information but you can't, neener-neener.

For an example of how the Fed does Restricted Controlled FR - oooh, scary - see Fed slimeballs figuring out how they could get away with threatening Ken Lewis without getting caught. I remember an episode of To Catch a Predator where the pervert also wrote a preemptive letter "just in case" he got busted by a major television network for skeezing on 15 year old girls.

Anyway. You get the point.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.