Market Report -- In Play (ECONX)

November 24, 2009 2:07 PM ET

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Summary of FOMC minutes Overall, the Treasury market had recovered substantially from the strains during the financial crisis, and the Manager reported that the completion of the Federal Reserve's purchase program did not appear to have led to any significant upward pressure on Treasury yields or to any notable deterioration in Treasury market functioning. There was little evidence, to date, of a buildup in year-end funding pressures, although demand for Treasury bills with maturities extending just beyond the year-end seemed to be elevated. The Manager noted that the recent path of purchases of agency debt was consistent with buying a cumulative amount of $175 bln by the end of the first quarter of 2010... The staff briefed the Committee on recent developments regarding various Federal Reserve liquidity and credit facilities, including the Term Auction Facility (TAF), the primary credit program, the Term Asset- Backed Securities Loan Facility (TALF), and the swap lines with foreign central banks. Usage of these facilities had been declining in recent months as financial market conditions continued to improve. Regarding the TALF, the staff indicated that auto and credit card asset-backed security issuance was increasingly being funded by non-TALF sources; however, commercial MBS remained more dependent on TALF financing... The information reviewed at the November 3-4 meeting suggested that overall economic activity continued to rise in recent months. The housing sector continued to recover, on balance... In the forecast prepared for the November FOMC meeting, the staff raised its projection for real GDP growth over the second half of 2009 but left the forecast for output growth in 2010 and 2011 roughly unchanged. The spending and production data received during the intermeeting period suggested that economic activity, especially household spending, was a little stronger in the summer than previously estimated. The staff forecast for inflation was little changed from the September meeting. Although oil prices moved higher, likely boosting near-term inflation, the staff also revised up its estimate of the degree of slack in the economy, leaving the forecast for total and core PCE inflation over the next two years little changed. The weakness in labor market conditions remained an important concern to meeting participants, with unemployment expected to remain elevated for some time... Stronger foreign economic activity, especially in Asia, as well as the partial reversal this year of the dollar's appreciation during the latter part of 2008, was providing support to U.S. exports. Participants noted that the recent fall in the foreign exchange value of the dollar had been orderly and appeared to reflect an unwinding of safe-haven demand in light of the recovery in financial market conditions this year, but that any tendency for dollar depreciation to intensify or to put significant upward pressure on inflation would bear close watching.... With respect to the large-scale asset purchase programs, all members supported reiterating the Committee's intention to purchase $1.25 trln of agency MBS by the end of the first quarter of 2010. The Committee also agreed to specify that its agency debt purchases would cumulate to ~$175 bln by the end of the first quarter, $25 bln less than the previously announced maximum for these purchases.

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