Morning Report – FOMC minutes10/10/13

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Oil (WTI) 101.6 0.0 -0.02%
LIBOR 0.243 -0.003 -1.02%
US Dollar Index (DXY) 80.39 0.014 0.02%
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Current Coupon Ginnie Mae TBA 105.2 -0.2
Current Coupon Fannie Mae TBA 104.3 -0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.27
Markets are higher on talk of a short term bump in the debt ceiling. Bonds and MBS are selling off.
Initial Jobless Claims increased to 374k. The jump was attributed to the unwinding of a computer problem in California and furloughed government employees.
The debt ceiling machinations are beginning to have more effects – in Hong Kong, the exchange increased the haircut on T-bills citing default concerns. Jack Lew is in front of the Senate Banking Committee this morning warning about the risks of not raising the debt ceiling. FWIW, Bill Gross is a buyer.
There was nothing earth-shattering in the FOMC minutes, which were released yesterday. On housing, they mentioned that the sector continued to strengthen, but they were worried about the increase in rates and what effect it would have. They noted the recent weakness in housing starts. The debt ceiling / government shutdown was mentioned as a further risk to the economy. Their estimates for GDP growth were taken down by 30 basis points.
On Page 8, they discuss the thought process behind the decision not to taper at the September meeting. For the most part, they were disappointed at the economic data and the ones who supported no changes to QE felt that reducing asset purchases would harm the housing recovery and the economy in general. The ones who were supported a reduction in QE were in favor of reducing it because they worried about sending mixed messages to the market, not because they were satisfied with the economy or were worried about inflation or asset bubbles. Because they sent the signal in June that they planned to reduce purchases and the market internalized it, they felt like they had to follow through, or else risk credibility at the Fed. They were worried about creating uncertainty. So here is the takeway, at least for me. They don’t want to end QE, they don’t even want to reduce it, but you may see a small tweak at the December meeting, just to prove that the Fed’s communications about its intentions can be relied upon. And if the economy continues to stagnate, that may be it for a while.

39 Responses

  1. Considering how much we borrow and how much we owe, isn’t it impossible for the Fed to raise interest rates to any degree for at least a decade? Isn’t a lot of the debt shorter term? Like less than 10 years? If so, a rise in interest rates would destroy even the most austere budget concievable.

    If the above is true, has any country ever recovered from this?

    Like

  2. Nice look at the civil war within the Republican party from Ace’s site.

    http://minx.cc/?post=344041

    What’s interesting to me is the current Democrat meme that the whole problem with the Republicans is that they’re not beholden enough to big business. If so, why is that bad? Also, project much?

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  3. “Jack Lew is in front of the Senate Banking Committee this morning warning about the risks of not raising the debt ceiling. FWIW, Bill Gross is a buyer.”

    From the link:

    “Pimco’s Gross: We think administration can prioritize”

    Yes, but will they chose to do so?

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    • jnc:

      Yes, but will they chose to do so?

      If the posture the admin has taken so far is any indication, they may well not choose to. Based on what has gone on so far (stoking fears of default, among his many other shut-down machinations) it seems that Obama’s sole motivation is whether or not it will benefit him politically. I suppose that if he convinces himself that he will not be held responsible for choosing to default, and that the R’s would be blamed, I can easily see him choosing to default. I am not convinced that the cynicism of this president has any bounds.

      Like

  4. Brent, do you expect all worldwide manufacturing, other than ours, to be destroyed any time soon? Has any country come back from this level of debt without ann intervening world wife war in which the debt incurer is the victor?

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  5. Why not find our what he’d do?

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  6. I suppose that if he convinces himself that he will not be held responsible for choosing to default, and that the R’s would be blamed, I can easily see him choosing to default.

    That’s how he rolls… I assume the worst out of him.

    Troll, I would think it is easier to deal with under a regime of fiat currencies than it was after WWII when the dollar was still linked to gold (albeit undervalued)

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  7. ” I suppose that if he convinces himself that he will not be held responsible for choosing to default, and that the R’s would be blamed, I can easily see him choosing to default”

    then he can be in thehistory books as POTUS when it happened. like anyone will remember Boehner

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  8. then he can be in thehistory books as POTUS when it happened. like anyone will remember Boehner

    excellent point

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  9. They just seem to becoming more, not less, invested in this narrative the closer it gets to the supposed deadline.

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  10. “it seems that Obama’s sole motivation is whether or not it will benefit him politically. ”

    I think he also believes his own BS about permanently weakening the presidency for successors, etc.

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  11. debt ceiling to Nov. 22. in exchange, WH talks entitlement reform. shutdown remains.

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  12. rumor

    Like

  13. Should the Executive and Congress allow for Debt Size increases with no accountability or leverage?

    @ByronYork: On Hill, Lew says Obama is ‘open’ to clean, short DL extension: ‘It’s really Congress’s decision how often it wants to vote on debt limit.’

    If the answer is no, we’re going to have to breach it.

    If yes, then repeal the law.

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    • McWing;

      Should the Executive and Congress allow for Debt Size increases with no accountability or leverage?

      Of course not. The debt ceiling acts as a an alarm on auto-pilot spending increases, which is what a huge amount of the budget is, and is a real problem.

      One of the constant refrains coming out of the admin, repeated ad nauseum by Lew this morning, is that congress needs to “do its job”, as if rubber stamping automatic spending increases is congress’ “job”.

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  14. @DavidMDrucker: RT @AaronBlakeWP: Carney: Obama ‘strongly prefers’ a longer-term debt resolution http://t.co/nrHXXACfLV

    He’ll get it too. Congress is ceding more power.

    Yeah us.

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  15. Here’s numbnuts take.

    @ThePlumLineGS: Dems read today’s GOP debt limit proposal as clear sign Rs will cave/raise it with no conditions: http://t.co/5XUWhgprST

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    • NPR seemed to take technical default – failure to pay bond interest timely – as a real possibility this morning, if the Debt Ceiling is not raised. The reasoning seemed to be that
      Treasury has no mechanism for prioritizing other than “first in due date – first to pay”.

      I do not believe this to be true. Treasury has prioritized payments in other ways even for the partial shutdown.

      However, assuming for the sake of argument that NPR is correct, I am left wondering why Treasury doesn’t just kite checks until the Debt Ceiling IS raised.

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      • Mark:

        However, assuming for the sake of argument that NPR is correct, I am left wondering why Treasury doesn’t just kite checks until the Debt Ceiling IS raised.

        Possibly because Obama is not motivated to avoid default. As I mentioned earlier, he is motived by political gain, and if dafault works to his advantage, he may well want to default.

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  16. Heh.

    @instapundit: Yes. Next question?

    “@lsferguson: Social Security not to be paid if debt ceiling not increased? Did someone STEAL our money we paid in?”

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  17. JNC — if there’s a train leaving the station, you want to make sure your luggage makes it.

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  18. Mark, also consider that if Treasury’s systems are as inflexible as everyone claims, then how did we get from May to here with “extraordinary measures” without even a hint of any kind of payment disruption?

    The dog that didn’t bark.

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  19. NoVA – That went right over my head.

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  20. Scott – The only way I could see getting rid of the debt ceiling would be if all spending was subject to annual appropriations votes. I.e. they have to appropriate money for Medicare, Medicaid, etc and if it runs out before the end of the fiscal year, they have to come back for another special appropriation.

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    • jnc:

      The only way I could see getting rid of the debt ceiling would be if all spending was subject to annual appropriations votes. I.e. they have to appropriate money for Medicare, Medicaid, etc and if it runs out before the end of the fiscal year, they have to come back for another special appropriation.

      Totally agree.

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  21. back from Hill. the state of play is still up in the air, …. but …. (and ia big but) …. if there is a must pass legislation moving, you start attaching other stuff to it. especially stuff that both sides want. SGR. please don’t post elsewhere

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  22. mark — i think klein doesn’t understand the House Rs at all. particularity the TP wing.
    they’re not feeling any pain yet.

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  23. mark — i think klein doesn’t understand the House Rs at all. particularity the TP wing.
    they’re not feeling any pain yet.

    Because they do not believe it is a real grass roots movement.

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  24. Oh right troll. Koch brothers.

    Classic projection. Just because they are top down means everything is.

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  25. “NoVA, what do you think of this take, as our resident insider?”

    Mark, as the ultimate outsider, my completely uninformed opinion is that debt-financed government spending hasn’t “saved the world” since World War II.

    … and as someone largely not paying attention to the news, all I can say is that the general premise (Republicans didn’t want to play chicken twice in one month) sounds reasonable, but I don’t know if that’s right. They may have caved on the debt ceiling anyway, and the government shutdown was just red meat for the base.

    … which goes to demonstrate just how much the TP is a grassroots movement, and how worried many Republicans are about courting the grassroots. I don’t think the government shutdown, or any of the Republican maneuvers that shock and horrify Democrats and lefties, are about catering to the Koch bros. It’s about catering to the grass roots base, which is a huge chunk of the electorate. Not enough to carry elections by themselves, but large enough that, if they abandon the Republicans, the Republicans will lose.

    In which case the Koch brothers barely matter. If they suddenly switched directions and started pushing a much more liberal agenda, the Tea Party would not follow them, and any Republicans who followed them into a Democrat-lite political framework in this hypothetical thought experiment would find themselves out of office. Thus, it is the grass roots that matter and are the most important part of Republican strategizing. Not the Koch bros, or Halliburton, or the military industrial complex.

    Like

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