No surprises in yesterday's Fed minutes

05/19/2011 8:30 am EST


Jim Jubak

Founder and Editor,

The Federal Reserve released its inner musings from its April 26-27 meeting yesterday, May 18.

No surprises in these minutes.

Ben Bernanke’s Fed continues to worry about the strength of the recovery in the U.S. economy, and would prefer to do nothing to unwind its balance sheet until it sees signs that the recovery is more solid than it looks right now.

Members spent as much time discussing how to communicate any eventual sale of its holdings and the first increase in short-term rates as they did debating the timing of those moves.

As Bernanke has said repeatedly recently, the first move to reduce the Fed’s huge balance sheet—totally some $2.7 trillion as a result of buying mortgage-backed securities and Treasuries as part of its two programs of quantitative easing—will be allowing some of the Fed’s $900 billion in mortgage-backed securities to mature without reinvesting the cash in new Treasuries. (Right now the Fed is reinvesting the proceeds in new debt instruments as holdings mature.) That would begin to shrink the Feds balance sheet.

The second move would be a decision to let the Fed’s $1.5 billion in Treasuries mature without reinvesting the proceeds.

And third, the Fed would move to actively sell some of its mortgage-backed securities.

That move appears to be a long way off since the minutes show a majority of those at the meeting inclined to delay asset sales until the Fed has started to actually raise short-term interest rates.

After a briefing flurry before the release of the minutes as traders positioned themselves to profit if the minutes did contain any surprises, the financial markets settled back to continue the modest trends of the last few days. In New York crude oil settled $3.19 higher at $100.12 continuing the recovery/bounce that began when West Texas Intermediate hit $96. The dollar moved modestly higher as the euro and the pound continued to fall on their own troubles. The Standard & Poor’s 500 index rose about 12 points and then stalled at short-term resistance near 1340.

All in all, dull. But I think that’s what the markets need right now.


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