FOMC meeting minutes

Just a couple of notes from the latest Minutes. 

The FOMC is authorized to hold up to $25 billion total of foreign currency, including any of the following:
Australian dollars
Brazilian reals
Canadian dollars
Danish kroner
euro
Japanese yen
Korean won
Mexican pesos
New Zealand dollars
Norwegian kroner
Pounds sterling
Singapore dollars
Swedish kronor
Swiss francs

"Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound." 

"Some participants mentioned the potential for a sharp increase in longer-term interest rates to adversely affect financial stability and indicated their interest in further work on this topic. "

"The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."

"The Desk is directed to continue purchasing longer-term Treasury securities at a pace of about $45 billion per month and to continue purchasing agency mortgage-backed securities at a pace of about $40 billion per month."

So interest rates will remain at 0.25% as long as the unemployment rate is above 6.5% AND inflation is projected to be 2.5% or less.  It looks like ZIRP will remain for several more years.  And no word on when the asset purchases will end.  Apparently, they also will continue for several more years, but I still think they will end when the Fed's balance sheet gets close to $5 trillion.

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Update: Inflationary expectations are expected to be about 1.5% for the next 10 years.

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A subcommittee in Congress is very concerned about this.

"I am especially concerned that the historically low interest rates brought on by the Federal Reserve's monetary policy have hampered economic growth by distorting traditional financial incentives.  Most strikingly, by maintaining low interest rates, the Federal Reserve has distorted the real cost of the national debt, effectively "incentivizing the U.S. goverment to borrow and overspend"."

Other observers predict that the Federal Reserve's eventual unwind will likewise cause a shart discontinuous increase in interest rates resulting in a sharp fall in bond prices "hurting retirement investments and bringing about a monetary cliff".

Translation:  Bernanke, you are an idiot.  You claim you are helping the economy but you are setting us up for an even worse recession next time.  We asked you some questions before but you continue to defend your actions.  Give us the fricking documents that show that you know the problems that your policies are causing.