In the recently released minutes of the FOMC Dec 14th meeting, several members of the committee appear to have made a central banker’s version of a foxhole conversion. However, despite this new-found religion, the heathens seem content to keep right on sinning. While confession may be good for the soul, real absolution requires repentance.

Among the concerns expressed by members were interest rates being too low to contain inflation, price pressures threatening growth, excessive speculation resulting from low interest rates, growing federal budget deficits, the expanding current account deficit, and declining foreign demand for dollars. Let me be the first to welcome the Fed members to a little place I like to call “reality.???

Now that they have acknowledge the obvious, I would ask them who do they think bears responsibility for rates being too low, inflation too high, and asset speculation so rampant? As Michael Jackson once said, maybe they should start with the man in the mirror.

Though general concerns about excessive risk taking were raised, no specific mention was made of the most egregious examples, such as the proliferation of adjustable rate, interest only, and low or no down-payment mortgages, or repeated waves of cash-our refinancing based on temporarily inflated home prices. Thirty four percent of all mortgages in 2004 were ARM’s, with the percentage highest among jumbo loans in the most over-heated markets. There was also no mention of the excessive reliance by the Federal Government on short-term financing of the national debt, which temporally reduces current budget deficits at the risk of far greater deficits in the future.

The most ridiculous aspect of these confessions is the Fed’s reluctance to reform its ways. If rates are too low, raise them. Quarter point increases every few months only encourages greater speculation. If inflation is a threat, do something to contain it, don’t stoke its flames. Although the Fed minutes seem to acknowledge that the horses have already left the barn, their actions indicate that they are holding the door open just in case a few more remain inside.