The Federal Reserve released their Meeting Minutes from the October 15th and November 2-3 meetings. This release was important as it gives an insight view into how Fed officials debated and decided on the second round of quantitative easing. From Bloomberg: The report illustrates the tension within the Fed over the decision to buy $600 billion of Treasuries, which has since attracted criticism from Republican politicians at home and some governments abroad. Increased internal disagreement over the purchases may hamper officials’ resolve to complete the entire amount of purchases scheduled through June. Most expected the purchases “to help promote a somewhat stronger recovery in output and employment while also helping return inflation, over time, to levels consistent with” the Fed’s legislative mandate, the Fed’s Open Market Committee said in the minutes. “Some participants noted concerns that additional expansion of the Federal Reserve’s balance sheet could put unwanted downward pressure on the dollar’s value in foreign exchange markets,” the minutes said… For the purchases, most officials “saw advantages to a more incremental approach that would involve smaller changes in the Committee’s holdings of securities calibrated to incoming data,” the Fed said.” The policy member most in opposition to the recent Fed actions include Thomas Hoenig who again voted to dissent, while Fed Governors Kevin Walsh and Charles Plossner also expressed skepticism. Despite the drawback of potentially unleashing higher inflation and the detriment such a policy may cause on the USD, the Fed felt that it can do this limited QE2 package within the context of price stability while also trying to help boost unemployment prospects. Fed’s Assessment of the Economy The Fed downgraded its assessment for growth. The Fed sees the economy growing between 3% and 3.6% next year, down from what they had project in June (3.5% to 4.2%). We saw today that the US GDP expanded 2.5% in the 3rd quarter, revised higher from the original reading of 2.0%. The Fed projected the unemployment rate to bet around 8.9% to 9.1% in the 4th quarter of 2011, compared with 8.3% and 8.7% in the June forecast. On the inflation front, forecasts were little changed for the next two years. The Minutes show that the Fed doesn’t expect inflation to rise above its informal target – around 2% – until 2013. Core inflation will average only 0.9%-1.6% next year. That means the Fed expects an extreme amount of slack in industrial capacity and the labor markets. The Fed minutes are unlikely to cause a big stir in markets, as the USD is favored currently as a safe haven because of the allure of US Treasuries (at least for this week). The downward revisions to the projects may have been expected as we had a string of weak data following the July projections. It seems that gold is the best alternative to the USD compared to other major fiat currencies. We saw gold gaining today amid sharp risk aversion.

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