Fed minutes don't provide anything new or definite on the start of a taper but point to September start

08/21/2013 2:36 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

If you were hoping for something that told you when the Federal Reserve would begin to taper off its purchases of $85 billion a month in Treasuries and mortgage-backed securities, then I think you’re disappointed with today’s release of the minutes from the July 31 meeting of the Federal Reserve’s Open Market Committee today at 2 p.m. New York time.

I think it’s frustration at the lack of guidance that, more than anything, pushed stocks lower after the minutes were released.

But while the minutes didn’t include anything like a definitive schedule for a taper or even anything new on when a taper might begin, the overall tone of the minutes, to me, add up to a modest beginning to a slowdown in the Fed’s purchasing plan beginning as early as the September 18.

You can read the entire minutes here http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130731.pdf but let me give you a few snippets that form the foundation for my view on a September taper.

First, the economic report from the Fed’s staff came in on the side of higher U.S. growth in the second half of 2013. Members of the Open Market Committee endorsed that view. “Participants generally continued to anticipate that the growth of real GDP would pick up somewhat in the second half of 2013 and strengthen further thereafter.” They pointed to a June employment report that “showed continued solid gains in payrolls. Nonetheless, the unemployment rate remained elevated, and the continuing low readings on the participation rate and the employment-to- population ratio, together with a high incidence of workers being employed part time for economic reasons, were generally seen as indicating that overall labor market conditions remained weak.

Inflation was below the Fed’s 2% target but the view seemed to be that this low rate reflected transitory factors.

Members also spent a considerable amount of time discussing the financial markets’ misperception of the Fed’s recent communications. Markets seem to have understood that slowing the pace of asset purchases implied an earlier than anticipated increase in the Fed 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.”

“Under that outlook, if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year. And if economic conditions continued to develop broadly as anticipated, the Committee would reduce the pace of purchases in measured steps and conclude the purchase program around the middle of 2014. At that point, if the economy evolved along the lines anticipated, the recovery would have gained further momentum, unemployment would be in the vicinity of 7%, and inflation would be moving toward the Committee’s 2% objective.”

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