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The FOMC's Great Debate


There are two potential downside catalysts: exhaustion and exogenous shock.


The following was posted originally in real time on the Buzz & Banter (click for a free trial).

The FOMC minutes have been released and there seems to be some dissension in the ranks, with a few officials favoring increasing and extending asset purchases and one seeking a reduction. I suppose we can't blame them for the confusion as there's a whole lot riding on their shoulders.

The tidbit that caught my eye however, wasn't the dissension; it was the agreement. And I quote:

To keep inflation expectations anchored, all participants agreed that monetary policy would need to be responsive to any significant improvement or worsening in the economic outlook and that the Federal Reserve would need to continue to clearly communicate its ability and intent to begin withdrawing the monetary policy accommodation at the appropriate time and place.

Therein lies the rub. There is a fine line between being responsive and being reactive. If policymakers were proactive -- if they admitted the errors of their ways or even feigned a semblance of culpability -- we would have a much better shot at avoiding the next crisis.

Make no mistake, there is no easy solution. And to be clear, the timing is anything but certain. As my buddy Fleck said over a Maui sunset, "We've already seen the crisis; the next shoe to fall is the full faith and credit of the US Government. Do you really wanna wait around betting on that?"

That singular sentence stuck with me; he's a smart cookie who cut bait on his bear bets and struck gold. If the next crisis is one of confidence, as I suspect, it really won't matter who was right and who was wrong. We need only dial back a year or so to prove that point. I'm not aware of a media outlet that nailed the conditional and cumulative comeuppance more presciently than Minyanville yet when the schivtz hit the fan, it was every man for himself (outside of our community, of course).

Guns and buttah time? Not according to the credit markets, which continue to smile and say, "Thank you sir may I have another?" And despite the word parsing of the FOMC text, odds are they're not going anywhere anytime soon. That leaves two potential downside catalysts -- exhaustion and exogenous shock; while both are dangerous, they're equally amorphous.

Curious times indeed. While I pride myself on seeing through the rain at the coming dawn, I can't shake the sense that perception (the markets) and reality (the world around us) are moving in completely opposite directions. I'm not sure how accurate -- or helpful -- this is, but it's from the heart and shared with the purest intentions.

And yes Fleck, you're right; the purpose of the journey is indeed the journey itself. It's oh-so-easy to lose sight of that while sitting in front of (eight) screens but it's never to late to learn. For by the time we get to where we're gonna be, the trip will have already ended. And what a trip it's been.

Fare ye well into the bell.


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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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