Thursday, February 2, 2012


Recently released transcripts from the Federal Reserve’s Open Market Committee meetings between 2000 and 2006 indicate a comparable increase in the rise in housing market prices and subsequent laughter amongst the committee members.

Blogger Kyle Akin of The Daily Stag Hunt did an interesting study of the FOMC meetings. Akin tracked the number of times the official record contained a pause for laughter among the group. He found that the FOMC averaged 16.5 pauses for fits of giggles per meeting in 2001.

By 2006, the Case-Shiller 20 City Home Price Index peaked, interest rates were low, the stock market was booming and housing prices were exploding; meanwhile, the FOMC cracked up a recorded 44 times each meeting.

The blogger noted one particular outburst when Vice Chairman Timothy Geithner spoke to former chairman Alan Greenspan during his final meeting:

“With the near-term monetary policy path that’s now priced into the market, we think the economy is likely to grow slightly above trend in ’06 and close to trend in ’07.”

In hindsight, Obama’s current U.S. Secretary of Treasury could not have been more incorrect.

The Fed’s chipper atmosphere mirrored the cheerful complacency on Wall Street and Main Street.

But then there was 2008: the greatest financial crisis since The Great Depression developed; the housing market crashed and burned and the value of derivatives evaporated. According to the S&P/Case-Shiller Home Price Index, at its lowest point, home prices fell nearly 20 percent in a single month.

Though FOMC minutes are released three weeks following the group’s gatherings, full transcripts that record details are not available to the public for five years thereafter.

While we cannot know for certain, it might be reasonable to assume a hush has fallen over the formerly funny FOMC crowd since 2008.

Even after a brief 2010 recovery, home have continued to fall despite present Chairman Ben Bernanke’s best efforts to boost the market with low interest rates. It is estimated that this past November’s Case-Shiller Index will show an additional 3% drop.

Hilarious or humorless? Regardless, the true point of interest is the Fed’s increased transparency, ultimately.

Unfortunately, “we can never know within a reasonable period of time if the FOMC actually knows what it is doing… [and] we are not laughing,” Alan Newman said in response to the laughter count.

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