MBS UPDATE: FOMC Minutes Out.... Initial Reaction Favorable, But Stay Tuned.

As scheduled, the FOMC has released the minutes from it's recent policy meeting ending April 29th.  Here is the full text.

Some of the highlights are as follows:

• GDP forecasts cut again.  Previous range was -1.3 to -0.5.  New forecast is -2.0 to -1.3.  2010 still seen turning positive again
• Most Fed Governors see a "return to long run potential" taking 5 to 6 years
• Most expected gradual recovery with elevated unemployment through 2011
• FEWER saw risk to inflation outlook
• some note risk that inflation could stay persistently too low
• Most expected Inflation to be subdued over next few years
• Most agreed inflation risks are balanced
• Economy still facing significant downside risks.
• Available data indicates stabilization still tentative
• Some evidence emerging that the RATE of contraction is starting to decrease.  (aka "less bad")
• Many believed risk of protracted deflationary period had decreased
• Security Purchases remain intact
• SOME THOUGHT SECURITIES PURCHASES SHOULD BE INCREASED IN ORDER TO STIMULATE RECOVERY
• Long run forecasts unchanged
• 2009 core PCE target revised upward from .9 - 1.1 to 1.0-1.5
• 2009 unemployment forecast now 9.2 to 9.6 % versus 8.5 to 8.8% previously

Here's how Stocks and the 10 yr have reacted:

More analysis will follow, but here's what's important: don't read too much into this rally.  Without a substantial treasury rally, MBS profit takers will come out and prices will fall.  In addition, the fact that we haven't seen stocks sell off MORE indicates the possibility of a bounce in a bit.  There is always an initial "I think it's going this way!" spike, but it takes a bit more time for the markets to decide how they feel.  Stay tuned for more shortly.