With all eyes fixed on any mention of the length of time post-taper before rate hikes, stocks and bonds slid gently in the last few minutes before the minutes release - and sure enough...
- *SEVERAL FED OFFICIALS SAID FORECASTS OVERSTATED RATE RISE PACE
In other words, we are way more dovish than you thought we were... Weather was blamed for any slowdown and the pace of tapering appears set. Bear in mind these minutes reflect a discussion that took place - at least from a chronological standpoint - before Janet Yellen's "six months" statement.
Pre-FOMC: S&P Futs 1852.75, 10Y 2.717%, Gold $1304
Here is the key fragment:
A few participants suggested that new language along these lines could instead be introduced when the first increase in the federal funds rate had drawn closer or after the Committee had further discussed the reasons for anticipating a relatively low federal funds rate during the period of policy firming. A number of participants noted the overall upward shift since December in participants’ projections of the federal funds rate included in the March SEP, with some expressing concern that this component of the SEP could be misconstrued as indicating a move by the Committee to a less accommodative reaction function. However, several participants noted that the increase in the median projection overstated the shift in the projections. In addition, a number of participants observed that an upward shift was arguably warranted by the improvement in participants’ outlooks for the labor market since December and therefore need not be viewed as signifying a less accommodative reaction function. Most participants favored providing an explicit indication in the statement that the new forward guidance, taken as a whole, did not imply a change in the Committee’s policy intentions, on the grounds that such an indication could help forestall misinterpretation of the new forward guidance.
So is "several" less than or more than 6 months? Of course, these are Fed forecasts. Which are always wrong anyway. Which incidentally was confirmed by the death of forward guidance. This is what the Fed had to say about that:
Almost all participants agreed that it was appropriate at this meeting to update the forward guidance, in part because the unemployment rate was seen as likely to fall below its 6½ percent threshold value before before long. Most participants preferred replacing the numerical thresholds with a qualitative description of the factors that would influence the Committee’s decision to begin raising the federal funds rate. One participant, however, favored retaining the existing threshold language on the grounds that removing it before the unemployment rate reached 6½ percent could be misinterpreted as a signal that the path of policy going forward would be less accommodative. Another participant favored introducing new quantitative thresholds of 5½ percent for the unemployment rate and 2¼ percent for projected inflation. A few participants proposed adding new language in which the Committee would indicate its willingness to keep rates low if projected inflation remained persistently below the Committee’s 2 percent longer-run objective; these participants suggested that the inclusion of this quantitative element in the forward guidance would demonstrate the Committee’s commitment to defend its inflation objective from below as well as from above.
Either way, stocks love it as the Fed has just given the go ahead to reflate the bubble some more.
Full minutes: