FOMC Minutes Show Fed Fears Investors Are Too Complacent; QE To End In October

Tyler Durden's picture


Having continued to taper, expressed no fear of inflation, and been nothing but confident that Q1 was nothing-but-weather at the press conference, the FOMC Minutes:


Strange not a mention of the surge in Treasury fails but this appears as close to a "sell" as the Fed will give...

Pre-FOMC Minutes: S&P Futs 1964, Gold $1323.50, 10Y 2.59%, Oil $102.22, JPY 101.75

Some of the key excerpts:

On complacency:

The VIX, an index of option-implied volatility for one-month returns on the S&P 500 index, continued to decline and ended the period near its historical lows. Measures of uncertainty in other financial markets also declined; results from the Desk’s primary dealer survey suggested this development might have reflected low realized volatilities, generally favorable economic news, less uncertainty for the path of monetary policy, and complacency on the part of market participants about potential risks.

On the October end to QE:

While the current asset purchase program is not on a preset course, participants generally agreed that if the economy evolved as they anticipated, the program would likely be completed later this year. Some committee members had been asked by members of the public whether, if tapering in the pace of purchases continues as expected, the final reduction would come in a single $15 billion per month reduction or in a $10 billion reduction followed by a $5 billion reduction. Most participants viewed this as a technical issue with no substantive macroeconomic consequences and no consequences for the eventual decision about the timing of the first increase in the federal funds rate—a decision that will depend on the Committee’s evolving assessments of actual and expected progress toward its objectives.

On lack of investor certainty:

A few participants thought that, given the degree of uncertainty about the effects of the Committee’s tools on market rates, it might be preferable to focus on an administered rate in communicating the stance of policy during the normalization period

On lack of wage frowth:

A couple of participants noted that, to date, consumer spending had been supported importantly by gains in household net worth while income gains had been held back by only modest increases in wages. In their view, an important element in the economic outlook was a pickup in income, from higher wages as well as ongoing employment gains, that would be expected to support a sustained rise in consumer spending.

Odd how said pickup never happens then?

Then there was the absolutely laughable normalization, which may be coming sooner than people think, although probably not as nobody has any idea what it means.

Overall, participants generally expressed a pr eference for a simple and clear approach to normalization that would facilitate communication to the public and enhance the credibility of monetary policy. It was observed that it would be useful for the Committee to develop and communicate its plans to the public later this year, well before the first steps in normalizing policy become appropriate. Most participants indicated that they expected to learn more about the effects of the Committee’s various policy tools as normalization proceeds, and many favored maintaining flexibility about the evolution of the normalization process as well as the Committee’s longer-run operating framework. Participants requested additional analysis from the staff on issues related to normalization and agreed that it would be helpful to continue to review these issues at upcoming meetings. The Board meeting concluded at the end of the discussion.

More on the total confusion within the FOMC:

The dispersion of projections for the value of the federal funds rate was little changed in 2015 but widened slightly in 2016. Most participants expected that the federal funds rate at the end of 2016 would still be significantly below their individual assessments of its longer-run level. For about half of these participants, the low level of the federal funds rate at that time was associated with inflation well below the Committee’s 2 percent objective. In contrast, the rest of these participants saw the federal funds rate at the end of 2016 as still significantly low despite their projections that the unemployment rate would be close to or below their individual longer-run projections and inflation would be at or close to 2 percent at that time. These participants cited some combination of a lower equilibrium real interest rate, continuing headwinds from the financial crisis and subsequent recession, and a desire to raise the federal funds rate at a gradual pace after liftoff as explanations for the still-low level of the projected federal funds rate at the end of 2016. A couple of participants also mentioned broader measures of labor market slack that may take longer to return to their normal levels than the unemployment rate.


Estimates of the longer-run level of the federal funds rate ranged from 3¼ to about 4¼ percent, reflecting the Committee’s inflation objective of 2 percent and participants’ individual judgments regarding the appropriate longer-run level of the real federal funds rate in the absence of further shocks  to the economy. Compared with March, some participants revised down their estimates of the longer-run federal funds rate, with a lower assessment of the longer- run level of potential output growth cited as a contributing factor for the majority of those revisions. As a result, the median estimate of the longer-run federal funds rate shifted down to 3.75 percent from 4 percent in March, while its mean value declined 11 basis points to 3.78 percent.

Finally, use of "liftoff":

It was noted that, in the staff’s models, making a change to the Committee’s reinvestment policy prior to the liftoff of the federal funds rate, at the time of liftoff, or sometime thereafter would be expected to have only limited implications for macroeconomic outcomes, the Committee’s statutory objectives, or remittances to the Treasury.




Many participants agreed that ending reinvestments at or after the time of liftoff would be best, with most of these participants preferring to end them after liftoff.




the median dealer had expected reinvestments to end before liftoff.




participants cited some combination of a lower equilibrium real interest rate, continuing headwinds from the financial crisis and subsequent recession, and a desire to raise the federal funds rate at a gradual pace after liftoff as explanations for the still-low level of the projected federal funds rate at the end of 2016.

Full hawkish minutes:

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Wed, 07/09/2014 - 14:03 | 4940320 MFL8240
MFL8240's picture


Wed, 07/09/2014 - 14:05 | 4940329 AllThatGlitters
AllThatGlitters's picture

Gee, who would have expected this?

Live Gold:

Live Silver:

Thw whipsaws are laughable.

Wed, 07/09/2014 - 14:11 | 4940363 Greenskeeper_Carl
Greenskeeper_Carl's picture

I just love how they still have the gall to talk about improving economic conditions after even with their massaged, bullshit numbers, they still admitted to a -2.9% 1st quarter GDP. But don't worry, just the weather, everything is fine.

Wed, 07/09/2014 - 14:13 | 4940376 cifo
cifo's picture

October is the month when crashes happen (see 29, 87, 08)

Wed, 07/09/2014 - 14:18 | 4940397 Vagabond
Vagabond's picture

"Belgium" is prepared to further step up their purchases as the Fed exits QE.

Wed, 07/09/2014 - 14:29 | 4940442 Headbanger
Headbanger's picture

Translation:   Ending QE means the end of any promises by the Fed.

Which means "Belgium" can and will be cut out too without any need to announce it as with QE.


So bend over!

Wed, 07/09/2014 - 14:34 | 4940463 whotookmyalias
whotookmyalias's picture

Fundamentals baby. It's all good. Even Janitors will be making $15 per hour.  Buy, buy, buy! 

Wed, 07/09/2014 - 14:49 | 4940517 knukles
knukles's picture

I told Mrs K that I should get a raise to $15/hr for my household duties and she told me to go sleep in the woods, eat bugs and reminded me that I know where my hand is.

Wed, 07/09/2014 - 14:58 | 4940532 Divided States ...
Divided States of America's picture

Who is the Fed referring to as 'investors'???? There aint no true investors left in this market. anyways, arent they the 'ones' ordering the purchases of all the stocks to begin with??

Wed, 07/09/2014 - 15:28 | 4940671 SamAdams
SamAdams's picture

Remember when China told us back in Jan? that the FED was out by November?  Better listen to those guys as they have a vested interest.....  Remember what they said about rate hikes?

Wed, 07/09/2014 - 19:20 | 4941342 Metric
Metric's picture

I guess this means the politicians should be expecting an "october surprise."

Wed, 07/09/2014 - 16:09 | 4940806 Headbanger
Headbanger's picture

No.  It's about FUNDING now, not fundamentals.

As in the U.S. Treasury won't get any fucking funding from they're previous foreign bond buyers cause they've  all had it with our bullshit "economy" and Obozo as well!

So yields are about to spike and equities are about to be dumped like the shit they really are.

Wed, 07/09/2014 - 14:32 | 4940452 asking4it2k
asking4it2k's picture

The FEDs "primary dealers" via Belgium, or EUROCLEAR ?

Wed, 07/09/2014 - 15:27 | 4940670 yogibear
yogibear's picture

So William Dudley, of the NY Fed,  puts on his Belgium hat on and buys US treasuries.

Wed, 07/09/2014 - 14:18 | 4940403 NotApplicable
NotApplicable's picture

Thank God for reverse-repos!

Wed, 07/09/2014 - 14:32 | 4940432 SafelyGraze
SafelyGraze's picture

in the future, please to use my more thoughtful pose for your accompanying photo teaser


Wed, 07/09/2014 - 14:13 | 4940373 max2205
max2205's picture for tons of M&A deals in the next 4 months

Wed, 07/09/2014 - 14:09 | 4940358 RockRiver
RockRiver's picture

DOW headline on my system:

07/09/2014 13:00 *Fed: Some Officials Concerned About Persistent Low Inflation


What Farking low inflation? These guys don't go to a grocery store do they?


Wed, 07/09/2014 - 14:19 | 4940407 1stepcloser
1stepcloser's picture

My take when they say low inflation...Credit expansion isn't great enough to keep the ponzi going

Wed, 07/09/2014 - 14:39 | 4940473 Bernoulli
Bernoulli's picture

Same in Europe. They keep hammering in our heads that there is low inflation to keep going with unconventional measures. Great system: The only number that has to be manipulated is the inflation rate. Then all the rest will be done "according to the plan" to "save us" from the terrible deflation threat.

"NO WORRIES, bigger balance sheets don't lead to inflation anymore! We will easily extract the money from the system once the time is right".

This time it's different!


Thu, 07/10/2014 - 12:51 | 4943871 kwality
kwality's picture

Ladies and Gentlemen, we have entered the negative velocity zone.  Please fasten your seatbelts to prepare for the death spiral.

Wed, 07/09/2014 - 14:35 | 4940465 khakuda
khakuda's picture

They have done 2 things to mask it.  The first is common knowledge, the second more subtle.

1.  Keep changing the composition of the benchmark and, when that doesn't work, change the benchmark itself.  ie,, hedonic pricing, substitution, go from CPI to CPI ex food/energy then to PCE and PCE less food/energy, etc.

2.  Keep the focus on the monthly number or multiply it by 12 to focus on an annual run rate.  NEVER show the cumulative number over 5, 10 or 20 years because that would highlight how much purchasing power has been stolen from the public.

Wed, 07/09/2014 - 17:09 | 4940950 daveO
daveO's picture

Here's a beauty.

The author says there's not enough plant fillers in burgers. I used to eat at MCD's when their burgers tasted like beef, over 20 years ago! 

Wed, 07/09/2014 - 15:20 | 4940643 BeerMe
BeerMe's picture

Don't remind me how depressing grocery shopping is.  Went last night spent $70 or so and the fridge is still empty.

Wed, 07/09/2014 - 14:21 | 4940416 Lewshine
Lewshine's picture

This market wanted to selloff on the news, but was caught and ramped by the plunge protection team, who is always standing ready to catch that falling knife. Jus an absolute crock of SHIT!!!

Wed, 07/09/2014 - 14:29 | 4940445 asking4it2k
asking4it2k's picture

The FED wants everyone out of savings and into the stock market. Thats been their plan since the birth of ZIRP.

Everyone in the equities boat so it cannot crash!!

The FED will do every trick in the book to keep the bubble going, while at the same time saying they dont see bubbles, only "noise"

Wed, 07/09/2014 - 15:00 | 4940548 yrad
yrad's picture

DOW 17,000! Again! It's like a birthday party for an Alzheimer patient.

Wed, 07/09/2014 - 16:02 | 4940783 robertsgt40
robertsgt40's picture

Brussels to the rescue?

Wed, 07/09/2014 - 17:12 | 4940976 Catflappo
Catflappo's picture

70 people listed as being in attendance.

Yep, every chance of a lock-tight cone of silence there then....


Wed, 07/09/2014 - 14:04 | 4940324 Pareto
Pareto's picture

Nothing to see here folks......move along.

Wed, 07/09/2014 - 14:06 | 4940326 ejmoosa
ejmoosa's picture

QE does not end until they withdraw ALL the dollars they have injected.


Issues that have matured are being used to buy more.  They just will not be increasing the total QE amount beyond October(if you actually believe them).

Wed, 07/09/2014 - 14:12 | 4940369 THX 1178
THX 1178's picture

QE does not end until "Belgium" and all other proxy buyers stop buying.

Wed, 07/09/2014 - 14:13 | 4940372 ejmoosa
ejmoosa's picture

I cannot argue with that....

Wed, 07/09/2014 - 15:19 | 4940637 mc225
mc225's picture

yeah they're like, 'we're not going to fuck with the market any more' and everyone is like, 'yeah right'.

Wed, 07/09/2014 - 14:05 | 4940331 orangegeek
orangegeek's picture

this Fed organization has to be the most useless function in the US economy


the crap that yellen and her fellow con-artists bloviate - generalizations, blatant lying and irrelevant


end the fed

Wed, 07/09/2014 - 14:07 | 4940341 ejmoosa
ejmoosa's picture

Worse than useless, they are destructive to the real US Economy.

Wed, 07/09/2014 - 14:19 | 4940408 NotApplicable
NotApplicable's picture

They are extremely useful to the 1% and their cronies.

Wed, 07/09/2014 - 14:05 | 4940332 Ness.
Ness.'s picture

Dow sells off 8 points on FED warning of risks.  First the BIS.  Now the FED.  You just gotta laugh.  

Wed, 07/09/2014 - 14:06 | 4940334 alien-IQ
alien-IQ's picture

the market has shrugged off this (sort of) "sell" signal.

Wed, 07/09/2014 - 14:07 | 4940338 wmbz
wmbz's picture

Same old shit...Nothing but noise. Clear sailing ahead, continue dancing!

Wed, 07/09/2014 - 14:07 | 4940339 Dr. Engali
Dr. Engali's picture There is no such thing as risk in a riskless society.

Wed, 07/09/2014 - 14:13 | 4940371 gjp
gjp's picture

Investors are complacent because you bail them out at the slightest hint of a loss.

Stop printing money and micro-managing every corner of capital markets, and then see what happens to complacency.

Talking constantly out of both sides of their mouths while they enable the kleptocratic dismantling of the global economy.  Lamposts are too good for these people.

Wed, 07/09/2014 - 14:07 | 4940340 GrinandBearit
GrinandBearit's picture

I guess Zimbabwe will now start buying US treasuries.


Wed, 07/09/2014 - 14:07 | 4940343 ebworthen
ebworthen's picture


WTF does that mean?  They want us like mushrooms, kept in the dark and fed bullshit; or they want to tell us exactly when they are going to pull their monkey wrenches out of the economy?

Wed, 07/09/2014 - 14:27 | 4940433 financialrealist
financialrealist's picture

"They want us like mushrooms, kept in the dark and fed bullshit", thanks for the laugh...ill use that agian...

Wed, 07/09/2014 - 14:08 | 4940344 fonzannoon
fonzannoon's picture

so after 5 years of trying to get retail into the market, the fed feels investors are too complacent. So they should get back into cash. Okay....

Wed, 07/09/2014 - 14:14 | 4940380 Slave
Slave's picture

"See!!!1 We warned you!!!"

Might be getting ready to pull the plug...

Wed, 07/09/2014 - 14:22 | 4940418 Quinvarius
Quinvarius's picture

That butt plug has been plugged in for 7 years.  I wonder what will come out?

Wed, 07/09/2014 - 14:08 | 4940345 Frank N. Beans
Frank N. Beans's picture

dow plunging 0.3 percent from day's high

Wed, 07/09/2014 - 14:08 | 4940347 MrTouchdown
MrTouchdown's picture

No worries. So long as Belgium doesn't also begin tapering, everything will continue as-is. BTFD or die!

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