"Broad Support For Bernanke Tapering Timeline" FOMC Minutes Say
While some read the FOMC statement in July as more 'dovish' than expected - even though the market's performance since suggests otherwise -, it appears the actual conversations from the minutes point in a more 'Taper'-on direction (though clearly uncertainty remains high):
- *A FEW ON FOMC URGED PATIENCE, OTHERS FAVORED QE TAPERING SOON
- *FOMC MINUTES SHOW BROAD SUPPORT FOR BERNANKE TAPERING TIMELINE
- *FOMC PARTICPANTS SAID SEQUESTRATION 'CLOUDED THE OUTLOOK'
- *FOMC PARTICIPANTS PREDICTED GDP TO PICK UP IN 2ND HALF 2013
- *ALMOST ALL FOMC PARTICIPANTS BACKED 'CONTINGENT OUTLOOK' FOR QE
- *FOMC SAID JUNE PAYROLL REPORT SHOWED 'CONTINUED SOLID GAINS'
Pre-minutes: S&P (Fut) 1646, 10Y 2.8125%, USD 81.2, WTI $104.11, Gold $1371
Paddy Power Odds have SeptTaper as 'Evens' and October as 5/2 (i.e. 50% chance of SeptTaper and 28% chance of OctTaper)
Key excerpts from the Minutes:
Moreover, investors may have perceived that Committee communications about the possibility of slowing the pace of asset purchases also implied a higher probability of an earlier firming of the federal funds rate. Subsequent Federal Reserve communications, which emphasized that decisions about the two policy tools were distinct and underscored that a highly accommodative stance of monetary policy would remain appropriate for a considerable period after purchases are completed, were seen as having helped clarify the Committee’s policy strategy. A number of participants mentioned that, by the end of the intermeeting period, market expectations of the future course of monetary policy, both with regard to asset purchases and with regard to the path of the federal funds rate, appeared well aligned with their own expectations. Nonetheless, some participants felt that, as a result of recent financial market developments, overall financial market conditions had tightened significantly, importantly reflecting larger term premiums, and they expressed concern that the higher level of longer-term interest rates could be a significant factor holding back spending and economic growth. Several others, however, judged that the rise in rates was likely to exert relatively little restraint, or that the increase in equity prices and easing in bank lending standards would largely offset the effects of the rise in longer-term interest rates.
On forward guidance and lowering the unemployment threshold:
However, in the view of the one member who dissented from the policy statement, the improvement in the labor market was an important reason for calling for a more explicit statement from the Committee that asset purchases would be reduced in the near future. A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases. At the same time, a few others pointed to the contingent plan that had been articulated on behalf of the Committee the previous month, and suggested that it might soon be time to slow somewhat the pace of purchases as outlined in that plan.
Finally, the potential for clarifying or strengthening the Committee’s forward guidance for the federal funds rate was discussed. In general, there was support for maintaining the current numerical thresholds in the forward guidance. A few participants expressed concern that a decision to lower the unemployment threshold could potentially lead the public to view the unemployment threshold as a policy variable that could not only be moved down but also up, thereby calling into question the credibility of the thresholds and undermining their effectiveness. Nonetheless, several participants were willing to contemplate lowering the unemployment threshold if additional accommodation were to become necessary or if the Committee wanted to adjust the mix of policy tools used to provide the appropriate level of accommodation. A number of participants also remarked on the possible usefulness of providing additional information on the Committee’s intentions regarding adjustments to the federal funds rate after the 6½ percent unemployment rate threshold was reached, in order to strengthen or clarify the Committee’s forward guidance. One participant suggested that the Committee could announce an additional, lower set of thresholds for inflation and unemployment; another indicated that the Committee could provide guidance stating that it would not raise its target for the federal funds rate if the inflation rate was expected to run below a given level at a specific horizon. The latter enhancement to the forward guidance might be seen as reinforcing the message that the Committee was willing to defend its longer-term inflation goal from below as well as from above.
FOMC Minutes (link)
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