3 points on the Fed minutes

*  It was interesting (and kind of disappointing) that the Fed didn't provide any discussion of the implementation of lifting rates off of zero.  As has been discussed here and elsewhere, thanks to the Everest of excess reserves, the mechanism for raising rates is a little more complicated than simply specifying a target range for Fed funds and adding/draining liquidity.   It seems pretty clear that IOER will be used to ensure a ceiling for the target range that banks will use to park excess reserves; the trouble comes from the GSEs, who have access to the Fed funds market but not IOER.   The Fed will likely use a reverse repo facility that the GSEs and money market funds can access, but as of yet, we still have no idea a) if it will be a "your amount" facility, or b) what the spread will be to IOER and the FF target.  It's kind of crazy when you think about it, but if the RRP spread is wide enough, the Fed could conceivably raise rates without actually raising rates.  A little clarity on their intent would not have gone amiss.

* The dovish wing of the committee is talking themselves into a bit of a catch-22 when it comes to normalizing policy.  "They also noted uncertainty about whether economic growth was robust enough to withstand potential adverse shocks, given the limited ability of monetary policy to offset such shocks when the federal funds rate is near its effective lower bound, and concern that the beginning of policy normalization might be associated with an unwarranted tightening of financial conditions."  In other words, with rates at zero, you cannot move the policy rate any higher because if something goes wrong, rates are too close to zero to generate an effective easing.   In addition to casting a subtle aspersion on the efficacy of QE, this line of thinking also suggests that ZIRP is like the event horizon of some sort of monetary black hole; once you enter, you can never leave.  Actually, the empirical evidence to date would appear to back that up....

* The initial part of the minutes summarized a discussion on a staff presentation on the equilibrium real interest rate, a subject Macro Man touched on a few weeks ago.  While the conclusion was understandably that the equilibrium rate was lower than it used to be, Macro Man was struck by this:

In their comments on the briefings and in their discussion of the potential use of r* in monetary policy deliberations, policymakers made a number of observations. The unemployment rate has declined gradually in recent years, indicating that real gross domestic product (GDP) growth has, on average, exceeded growth of potential GDP, but not by a substantial margin. This outcome, in turn, suggested that the actual level of short-term real interest rates has been below but not substantially below the equilibrium real rate, consistent with estimates that r* currently is close to zero...

So the edifice of the argument that the equilibrium real rate is zero is that unemployment has only declined "gradually" over the past few years?   Sure, unemployment has declined more slowly than it increased, but that's the case in almost all recessions and recoveries.   Let's put the recent decline in unemployment into context.   Here's a chart of the rolling 5 year change in unemployment since the 1950's:

As you can see, the 5 year decline in the unemployment rate is unmatched in history, except for the go-go 1980's.  The current percentile is just 1.2%.  OK, you say, but that's coming from an unnaturally high base thanks to the Great Recession; what if we look at a more recent time frame?   Here's the same indicator, but with a rolling 2 year change:

That's much less impressive; we're all the way up to the 2.4% percentile, and only the joint second fastest 2 year decline since the 1950's.  Gradual indeed.   If we look at the 1 year change in unemployment, what do we find?

From that perspective, it's a more middle-of-the-road decline in unemployment....but we've still seen the fastest decline in 30 years, though things have decelerated a bit since then.  Even so, we're still in the 21% percentile, which is pretty solid when we're so close to NAIRU.

By just about any definition, the decline in unemployment during the recovery has been faster than normal, even accounting for the high starting point.   Sorry, Fed.   You're entitled to your own opinions.   You're entitled to your own models.   You're not entitled to your own facts.

Finally, Macro Man doesn't really do "hot tips" for short term trades, but if he did, today's would probably be to buy silver.   Argent declined for fourteen consecutive days including yesterday, smashing the previous record of ten set during the financial crisis.  The loss of downside impetus over the last several days was notable, and yesterday's doji candle could represent something of a turning point.  It's notable that the RSI has already hooked higher at the first sniff of a rally, and it really wouldn't be surprising to see a 50c -75c pop from here just to kick a few of the latecomers to the selling party squarely in the groin.