Thread by @sam_a_bell

10 years later thread -- December 15-16, 2009 Federal Open Market Committee

optimistic on housing (cc @LoganMohtashami)

@LoganMohtashami just terrible terrible situation for workers

@LoganMohtashami

@LoganMohtashami help from the stimulus not enough. some states making across-the-board cuts and laying off workers.

@LoganMohtashami inflation declining not just in🇺🇸 ... global phenomenon

@LoganMohtashami Brian Sack (staff) tells the committee that the forward guidance worked

@LoganMohtashami more from Sack re Treasury yields

@LoganMohtashami Sack: "Overall, any upward pressure on Treasury yields arising from investors’ concerns about longer-term inflation risks or the fiscal outlook is being dominated by the downward pressure arising from the prospect of low short-term interest rates for an extended period"

@LoganMohtashami The beginning of the meeting is dominated by discussion of plumbing. Which tools will the Fed use now that it has a much bigger balance sheet? So much of the 2009 FOMC discussion was consideration about how the Fed would exit/tighten when time came.

@LoganMohtashami As he had previously, Plosser banging drum for tightening: need to "consider language that begins to prepare the market for the possibility that we will need to begin reducing the degree of policy accommodation and our interventions in private markets sooner rather than later."

@LoganMohtashami Dallas Fed President Richard Fisher: "That attitude [presumably more regulation and potentially higher taxes], Mr. Chairman, is definitely having a depressive effect."

@LoganMohtashami Lackers also says business uncertainty because of regs, climate+health legislation and deficits

@LoganMohtashami Yellen says labor market problem is so serious we may "end up with a lost generation of people whose skills and labor market attachment atrophy from disuse."

@LoganMohtashami more Yellen: "In my forecast, the zero bound and the limits on unconventional policy constrain us from pursuing a more desirable and more expansionary policy for some time to come."

@LoganMohtashami More worries/complaints about the Obama agenda. Pianalto (Cleveland Fed Prez): "proposals for health care reform, financial reform, and the new environmental regulations, have the potential to affect business conditions significantly in the near future."

@LoganMohtashami Minneapolis Fed President Kocherlakota (this is before the dramatic conversion) is worried: "Any uncertainty about the Congress’s will to exercise the required fiscal restraint translates directly into uncertainty about current or future inflation."

@LoganMohtashami more gripes about O agenda. NY Fed Prez Dudley: "we still have a tremendous amount of political uncertainty about health care reform, financial reform, and tax policy. In talking to our directors, they make it very clear that this is a factor influencing their hiring behavior."

@LoganMohtashami more Dudley: "Given the large amount of federal borrowing and the imminent wind-up of our largescale asset-purchase program, I am, frankly, quite surprised that long-term rates have not climbed more sharply."

@LoganMohtashami Kevin Warsh very worried about growing debt: "If we added the liabilities of Fannie and Freddie to the debt-to-GDP ratio here, our sovereign debt-to-GDP would double overnight... we cannot discount the prospect of some of these nonlinear outcomes in the financial markets."

@LoganMohtashami to be continued tomorrow... December 16th, 10 year anniversary of Ben Bernanke being named TIME's person of the year 🤔

@LoganMohtashami ok Day 2 -- 12/16/2009 FOMC meeting

Bernanke: "In the labor market, I think it’s really important for us to keep in mind what a deep hole we’re currently in...the employment-to-population ratio has fallen from a peak of 62.7 percent to 58.5 in the most recent month"

@LoganMohtashami more Bernanke: "The aggregate weekly hours of production workers has fallen more than 8 percent from the peak. Compare that with a decline of less than 6 percent in the 1981-1982 recession."

@LoganMohtashami and more Bernanke on jobs: "I think it is striking that the staff is projecting 200,000 to 300,000 jobs a month starting in the second quarter, with even more in 2011, and even so unemployment rates remain at 9.6 percent at the end of next year, for example."

@LoganMohtashami Wascher (staff) updates on latest inflation data coming in that morning: "it looks as if we’ll be down from 1.6 percent in the fourth quarter in the Greenbook to 1.2 percent for core PCE price inflation, and in the first quarter down from 1.3 percent to 1.1 percent."

@LoganMohtashami committee opted not to go with this option -- more stimulus

@LoganMohtashami Yellen: "I continue to see a persuasive case for further policy easing. We are far below maximum sustainable employment, inflation is undesirably low, and almost any version of the Taylor Rule.. recommends a negative setting for the federal funds rate at the present time."

@LoganMohtashami But she doesn't actually push for more stimulus... and more voices around the table want Fed to pull back on forward guidance. Like Fisher:

@LoganMohtashami Don Kohn: "If we had a positive nominal federal funds rate, I’d probably be arguing for some easing, but we don’t."

@LoganMohtashami more Kohn: "We have to replace a bunch of consumption...But we need to crowd in investment and net exports to replace all that, especially because I don’t think any of us want to crowd in government to replace all of that on a permanent basis. That’s not a sustainable situation."

@LoganMohtashami Hoenig (KC Fed Prez) is worried: "we need to be thinking about removing this accommodative policy and restoring our balance sheet... I’m very concerned about this 'extended period' language when we’re near zero..."

@LoganMohtashami Dudley: "We’re withdrawing quite a bit of accommodation, frankly, as we taper off the asset-purchase programs and phase out most of the liquidity facilities over the next few months."

@LoganMohtashami Bernanke references his 🕊️-ish critics - specifically @paulkrugman and @GagnonMacro - but swats away their concerns: "...the connection between what actions we can take at this point and effective easing in the markets is not at all clear."

@LoganMohtashami @paulkrugman @GagnonMacro Bernanke has last word: don't tighten but signal a move towards normalization

@LoganMohtashami @paulkrugman @GagnonMacro I find myself pretty depressed. Very little urgency to address what everyone seemed to acknowledge was a terrible terrible employment situation.

@LoganMohtashami @paulkrugman @GagnonMacro and a lot of complaining about fiscal/regulatory...

all the materials here federalreserve.gov/monetarypolicy…

@LoganMohtashami @paulkrugman @GagnonMacro Richard Fisher did have a funny joke ... but not that funny (NY Fed=Goldman Sachs) when you think about it

/end