22 Aug 2013
FOMC offers little insight on tapering initiative - economy still needs support?
FXstreet.com (New York) - The past month has been a tug of war between two prevailing consensuses – on one hand Fed Reserve officials see the writing on the wall and portend the near-term tapering of bond buying, whereas on the other hand others see the Fed preaching patience amidst a tepid economic recovery.
However, the minutes of the Fed's July 30-31 meeting released yesterday showed that almost all of the 12 members of the policy-making Federal Open Market Committee agreed changing the stimulus was not yet deemed appropriate.
Investors were certainly anxiously awaiting to see when the Fed will start to slow its $85 billion monthly asset purchases, with most honing in on the September meeting as the beginning of the end of the quantitative easing program, known as QE3. Of particular important, the minutes provided few clues on the potential timing for a reduction but did little to dissuade people expecting a policy change next month.
Fed committee united
"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," the minutes stated. "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."
After June's policy meeting, Fed Chairman Ben Bernanke told a news conference the central bank expected to start reducing its bond purchases later this year, with an eye toward halting them altogether by mid-2014.
Immediately following the minutes, U.S. stocks were roiled, falling to session lows after the minutes were released while the long-dated U.S. government bond yields rose – in the FX realm, the USD gained against the JPY and EUR. The Fed, which has taken unprecedented steps to help the slow U.S. economic recovery, wants to see sustainable economic growth and improvement in the labor market before it winds down the bond buying.
Still to early to taper?
This underlying tone of caution looks to remain the case even after today’s minutes – in the end, the Fed made no formal policy change after its July meeting, saying in a statement on July 31 that the U.S. economy continues to need support.
However, the minutes of the Fed's July 30-31 meeting released yesterday showed that almost all of the 12 members of the policy-making Federal Open Market Committee agreed changing the stimulus was not yet deemed appropriate.
Investors were certainly anxiously awaiting to see when the Fed will start to slow its $85 billion monthly asset purchases, with most honing in on the September meeting as the beginning of the end of the quantitative easing program, known as QE3. Of particular important, the minutes provided few clues on the potential timing for a reduction but did little to dissuade people expecting a policy change next month.
Fed committee united
"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," the minutes stated. "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."
After June's policy meeting, Fed Chairman Ben Bernanke told a news conference the central bank expected to start reducing its bond purchases later this year, with an eye toward halting them altogether by mid-2014.
Immediately following the minutes, U.S. stocks were roiled, falling to session lows after the minutes were released while the long-dated U.S. government bond yields rose – in the FX realm, the USD gained against the JPY and EUR. The Fed, which has taken unprecedented steps to help the slow U.S. economic recovery, wants to see sustainable economic growth and improvement in the labor market before it winds down the bond buying.
Still to early to taper?
This underlying tone of caution looks to remain the case even after today’s minutes – in the end, the Fed made no formal policy change after its July meeting, saying in a statement on July 31 that the U.S. economy continues to need support.