In what had already been exposed as a 'contentious' meeting the minutes of the last Un-Taper FOMC meeting show a Fed in turmoil...
- *MOST FED OFFICIALS SAW QE TAPERING THIS YEAR, HALTING MID-2014
- *FOMC FORECAST `GRADUAL ABATEMENT' OF HEADWINDS SLOWING GROWTH
- *A NUMBER OF FOMC PARTICIPANTS SAW RISING FISCAL POLICY RISK
- *SEVERAL FOMC PARTICIPANTS SAW FINANCIAL CONDITIONS AS TIGHTER
Of course, the question is - will Yellen be a consensus-seeker or dictator (like Bernanke clearly was in this meeting)?
Pre - S&P 500 Futs 1653, 10Y 2.66%, 10/17 bill 40bps, EUR 1.3515, Gold $1310
Some additional color:
- *SEVERAL FOMC PARTICIPANTS SAW HIGHER RATES AS RISK TO HOUSING
- *FOMC SAW `SIGNIFICANT RISKS' TO ECONOMY, INCLUDING FISCAL DRAG
- *FOMC MEMBERS SAW DOWNSIDE RISKS TO ECONOMY AS HAVING DIMINISHED
So in a nutshell - the Fed is all over the place!
Key sections:
On which securities would have been tapered, if tapering is now not fully off the table:
With regard to adjustments in the pace of asset purchases, whether at this or a future meeting, a few participants expressed a preference for not cutting MBS purchases but reducing purchases only of Treasury securities initially, with the intent of continuing to support the recovery in the housing sector. However, the appeal of including both types of securities in any reduction was also mentioned.
On the confusion among FOMC members:
... questions were raised about the effects on the housing sector and on the broader economy of the tightening in financial conditions in recent months, as well as about the considerable risks surrounding fiscal policy. Moreover, the announcement of a reduction in asset purchases at this meeting might trigger an additional, unwarranted tightening of financial conditions, perhaps because markets would read such an announcement as signaling the Committee’s willingness, notwithstanding mixed recent data, to take an initial step toward exit from its highly accommodative policy. As a result of such concerns, a number of participants thought that risk-management considerations called for a cautious approach and that, in light of the ambiguous cast of recent readings on the economy, it would be prudent to await further evidence of progress before reducing the pace of asset purchases.
On the Fed eatings its punchbowl and drinking it too:
With many outside observers expecting a decision to reduce purchases at this meeting, some participants emphasized a need to clearly communicate the rationale behind any decision not to do so, in order to avoid conveying a message of pessimism regarding the economic outlook or to reinforce the distinction between decisions concerning the pace of purchases and those concerning the federal funds rate.
On why tapering will be delayed again... and again... and again:
One participant suggested that postponing the reduction in the pace of asset purchases would also allow time for the Committee to further discuss and to implement a clarification or strengthening of its forward guidance for the federal funds rate, which could temper the risk that a future downward adjustment in asset purchases would cause an undesirable tightening of financial conditions
On the conflicting message the Fed admits it sends to the market:
With the markets apparently viewing a cut in purchases as the most likely outcome, it was noted that the postponement of such an announcement to later in the year or beyond could have significant implications for the effectiveness of Committee communications. In particular, concerns were expressed that a delay could potentially undermine the credibility or predictability of monetary policy by, for example, increasing uncertainty about the Committee’s reaction function and about its commitment to the forward guidance for the federal funds rate, with the result of an increase in volatility in financial markets. Moreover, maintaining the pace of purchases could be perceived as a sign that the FOMC had turned more pessimistic about the economic outlook.
On why even the Fed knows it has blown "forward guidance" :
Finally, it was noted that if the Committee did not pare back its purchases in these circumstances, it might be difficult to explain a cut in coming months, absent clearly stronger data on the economy and a swift resolution of federal fiscal uncertainties. Most of the participants leaning toward a downward adjustment in the pace of asset purchases also indicated that they favored a relatively small reduction to signal the Committee’s intention to proceed cautiously.
Full minutes below (link [6]):