The word of the day from the minutes of its last FOMC meeting is “notable”. 
Please consider the following snips from the Minutes of the Federal Open Market Committee January 30–31, 2024, released today.
The staff provided an update on its assessment of the stability of the U.S. financial system and, on balance, characterized the system’s financial vulnerabilities as notable. The staff judged that asset valuation pressures remained notable, as valuations across a range of markets appeared high relative to fundamentals. House prices increased to the upper end of their historical range, relative to rents and Treasury yields, though underwriting standards remained restrictive. CRE prices continued to decline, especially in the multifamily and office sectors, and low levels of transactions in the office sector likely indicated that prices had not yet fully reflected the sector’s weaker fundamentals. Vulnerabilities associated with business and household debt were characterized as moderate. Nonfinancial business debt growth declined, and the ability of firms to service their debt remained high relative to history.
Leverage in the financial sector was characterized as notable. In the banking sector, regulatory risk-based capital ratios continued to increase and indicated ample loss-bearing capacity in the banking system. The fair value of banks’ longer-term fixed-rate assets, including loans, increased in the fourth quarter as longer-term interest rates decreased, though banks remained vulnerable to significant increases in longer-term interest rates. Insurers had been increasing their investments in risky corporate debt. Funding risks were also characterized as notable. Uninsured deposits declined in the aggregate but remained high for some banks. Assets in prime money market mutual funds and other cash management vehicles continued to increase.
Regarding the economic outlook, participants judged that the current stance of monetary policy was restrictive and would continue to put downward pressure on economic activity and inflation. Accordingly, they expected that supply and demand in product and labor markets would continue to move into better balance. In light of the policy restraint in place, along with more favorable inflation data amid ongoing improvements in supply conditions, participants viewed the risks to achieving the Committee’s employment and inflation goals as moving into better balance. However, participants noted that the economic outlook was uncertain and that they remained highly attentive to inflation risks.
While many participants pointed to disinflationary pressures associated with improvements in aggregate supply—such as increases in the labor force or better productivity growth—a couple of participants judged that the downward pressure on core goods prices from the normalization of supply chains was likely to moderate.
In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle. They pointed to the decline in inflation seen during 2023 and to growing signs of demand and supply coming into better balance in product and labor markets as informing that view. Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.
Four Notable Things
- System’s financial vulnerabilities are notable
- Asset valuation pressures remained notable
- Insurers had been increasing their investments in risky corporate debt. Funding risks were also characterized as notable.
- Leverage in the financial sector was characterized as notable.
Concern Over Inflation
In light of the policy restraint in place, along with more favorable inflation data amid ongoing improvements in supply conditions, participants viewed the risks to achieving the Committee’s employment and inflation goals as moving into better balance.
However, participants noted that the economic outlook was uncertain and that they remained highly attentive to inflation risks. In their discussion of inflation, participants observed that inflation had eased over the past year but remained above the Committee’s 2 percent inflation objective.
They remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices. While the inflation data had indicated significant disinflation in the second half of last year, participants observed that they would be carefully assessing incoming data in judging whether inflation was moving down sustainably toward 2 percent.
Various participants noted that housing services inflation was likely to fall further as the deceleration in rents on new leases continued to pass through to measures of such inflation. While many participants pointed to disinflationary pressures associated with improvements in aggregate supply—such as increases in the labor force or better productivity growth—a couple of participants judged that the downward pressure on core goods prices from the normalization of supply chains was likely to moderate.
Inflation is wait-and-see but the Fed’s concern over asset bubbles and leverage is obvious, and notable.
The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate
In case you missed it, please see The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate
actions speak louder than words
ALL present asset bubbles are a consequence of the fckn up FED’s cheap money policy !
8% on a 10 years T would be reasonable, probably not enough!
No, it would not be enough. Needs to be north of 12% frankly.
Concerns over Inflation, was not many years ago they complained there was not enough inflation, after covering the plant with free money they have CONCERNS,one extreme to the other. wish they could do a better job, I know keep whipping out student debt, that will help. Pathetic
When you are playing with essentially monopoly money the world over, this is the kind of crazy that takes place.
Housing prices fell in the GFC because M1 NSA money stock, our “means-of-payment” money peaked on 12/27/2004 @ 1467.7. It didn’t exceed that # until 10/27/2008 @ 1514.2. I.e., there was no growth in the primary money stock for 4 consecutive years.
Contrariwise, Powell has already interrupted the trend, loosened money stock growth.
to much funny money(chips, Inflation Production ACT)
Intel just got $10,000,000,000 free taxpayer money for building new plant
INFLATION=continual devaluation of fiat $dollar
We need to drop rates and drop reserves. The 1966 Interest rate adjustment act is the paradigm.
The Fed wants low inflation, strong balance sheets, fairly values assets, and low unemployment. Without saying it, the FED wants a system of fractional slavery. It certainly doesn’t want communism because then it would be out of a job.
I say raise rates another percent point or two and let’s get the long needed recession and reset over and done with instead of dragging it out for another decade. Prices of everthing will come down and a lot of the wealth disparity will vaporize.
Bubbles? I was told all bubbles were deflated in 2023 with no lingering effects. Alles gut meine Freunde. Wage price spiral pumped Jan CPI/PP)I. Would not be surprised to see an reporting indicating abating CPI and PPI, minus a black swan event. Chair Powell will support His Excellency Chairman Biden in any event and reduce the rates before Nov.
Interest rates are only marginally restrictive, but more importantly the supply of credit remains far too large compared to historical norms. QT is proceeding too slowly and being offset by gov’t deficit spending. Very few sectors are feeling credit-constrained as yet.
Meanwhile, paying 5+% interest on untold trillions of cash and national debt and bank reserves etc is just a huge giveaway from the public purse to the already-wealthy. Just like the inflation.
Back when Volcker hit the brakes, both interest rates and credit supply were tightly curtailed. We aren’t doing that today. I fear the current national leadership lacks the political will to stop this inflation, so it’s likely to get worse before it gets better.
Meanwhile, Congress which literally has just one job to do each year (pass the appropriations bills) is “on recess” when they should be “doing something”.
I have rarely been so ashamed of this country…
All is well gents. We have the military complex to bail us out from all the collusion the Russians and Chinese have been up to. Oh, and North Korea and Iran of course.
All the colonialist on one side standing together or should it be, The Royalists vs The Deplorables. Eat that!
So they’re saying they didn’t intentionally destroy the housing market and all that goes with it… it’s just that they didn’t have a f’ng clue what they were doing?
They are not concerned about anything. They are getting rich like the rest of the 1-10%. Print another 10 trillion. Let it funnel back to the savings and investments to sit, earn their 5 percent. Buy up all the stock, houses etc and so on. Money is worthless to them, so they buy more assets driving everything higher. If they cared they would be telling congress to stop spending 5 trillion dollars per year more than they take in..This isn’t incompetence. It is the plan.
4 years in to 40 year high inflation and they continue to gawk and yap. The FFR NEVER was raised above the inflation rate as it should have been and their illegal balance sheet is still massive. Last time I checked they had “tightened” less than 10% of almost a $9T level. They should have run off 4T to 6T already and their “concern” over bubbled asset prices and leverage would have been taken care of. But they are bought and paid for pussies that ONLY serve wall street and their speaking fee providers and their future retirement payday employers.
And in several instances over a weekend they IMMEDIATELY dropped their panties and bailed out UK Gilts, SVB, a few other US banks, Credit Suisse and the Suisse CB, and a couple others that slip my mind. I despise the FED and everyone tied to it.
Probably written by ChatGPT as it should have picked up the meme relentlessly scanning the internet.
However, ChatGPT would have concluded by saying something like: This bunch of screwy … should be replaced by AI, but I bet that just was cut out before publication.
Every day that goes by this year everyone will be expecting the rates to come down. My view is they wont … till the end of the year, and a new/used president is crowned. And both of them, and all the rich that surround them, want zero percent rates again .. and again .. and again …
5%-6% is more than reasonable, it used to be like that until 2008 then came the easy money. Higher rates are the only way our government can slow down on spending.