The Fed Minutes once again provided some interesting substance to the over analyzing and parsing of statements that "Fed Watching" has devolved into. None other than Jon Hilsenrath (Last Board's "IT" Journo ) weighed in with a great piece this morning.
Last year, when many of us still held lollipop dreams of rate hikes and Death Star firings, we suggested tweaking the balance sheet and reserves was a more practical place to start than adjusting the funding rate. We were quickly brushed back by a plethora of younger (and obviously wiser) practitioners copying and pasting Fed statements on the order of exit.
Yesterday's Minutes showed several (many?) FOMC-ers with similar concerns to ours.
From Hilzy himself today:
"In March they agreed they might need to ignore their own cap, according to the minutes.
Fed officials also entertained ways to eliminate reserves more quickly than planned, including by selling some securities before they mature or allowing some to mature without reinvesting the proceeds. It is striking that they discussed new strategies for eliminating reserves at the March meeting"
What's that you say? "Striking"? Well, yes and no. What's striking is the modern incarnation of a Fed Watcher is someone who can read. What's striking is that despite a very solid track record of ingenuity and FLEXIBILITY, the populist view of the FOMC is that of a gaggle of clowns. In fact, since the halcyon days of TARP, Fed Flexibility has been its strongest trump card. Considering alternative routes (1 that we advocated) down an exit path NEVER successfully navigated in modern Central Banking is reassuring. The mantra of a quality Fed Watcher remains "watch what they DO, not what they SAY."