Minute by Minute

As I scoured through the inside poop behind the Federal Reserve’s last meeting, I hummed the Doobie Brothers tune, “Minute by Minute”, especially the last part that goes, “minute by minute…I keep holding on”. It feels like the economy is just barely holding on and the Fed minutes underscored the anxiety that we all feel and the lack of leadership being displayed by the nation’s central bankers.

Yesterday the Fed released minutes from the Jan. 29-30 FOMC meeting, which had culminated in a 50 basis point reduction. The best and brightest economists in our nation noted that “With no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the [Federal Open Market Committee] agreed that downside risks to growth would remain even after this action.” Geez—thanks for the update, guys!

To review what has happened: last August, the Fed cut unexpectedly by 50 basis points, then again surprised markets with a larger-than-expected cut at the regularly scheduled September 18 meeting. On Jan 22nd, the Fed enacted the largest cut in 23 years (75 basis points), followed by another 50 bps at the regularly scheduled January 30 FOMC meeting. In the span of nine days, the Fed had reduced fed funds by 29.4%. As a means of comparison, in the aftermath of the 1987 crash, then-Fed chairman Alan Greenspan cut rates by 37 basis points and did so at a regularly scheduled meeting.

Sometimes I feel like the Fed should walk out the door and talk to people who actually are part of the economy, rather than pour over data points. If they had done that last fall, they probably would have started to cut rates more aggressively. Instead, Mr. Bernanke and his Mensa Mavens waited too long to respond to the housing and credit crunch, leaving them no choice but to seem like pawns of the markets.

Here is the question that I can’t answer. According to the minutes, the Fed held a special conference call on January 9th, at which time no action was taken. Then just 12 days later, amid a massive global stock sell-off, but not with any additional economic news, the Fed was suddenly compelled to act. If there was truly “Some concern…expressed that an immediate policy action could be misinterpreted as directed at recent declines in stock prices, rather than the broader economic outlook," then perhaps the Fed ought to have acted before the market collapse.

Perhaps January was a turning point and we can now expect less wishy-washy action and more firm leadership and confidence from our central bankers. In the end, I am just thankful that the Fed woke up and finally acted and so too are investors, who bought stocks after the minutes were released yesterday. In many ways, markets are indeed just hanging on, minute by minute.