Insights from FOMC Minutes

08/28/2013 5:30 pm EST


Jim Jubak

Founder and Editor,

MoneyShow's Jim Jubak reviews the recent minutes of the FOMC and shares his thoughts on what it may mean for the months ahead.

At 2:00 New York time on Wednesday, August 21, the Federal Reserve's opening market committee released its minutes for its July 31 meeting, and I'd make it sound dramatic and do a countdown, but well, we weren't expecting them to say anything, and they really didn't say anything. They didn't say anything new, they didn't give us a schedule for the taper or a sense of what the speed is, but what they did do was not disrupt any thoughts about the taper, so the market sold off on the minutes, as people read them. Basically, what the Fed has said, which is what the Fed has been saying all along is that hey, it thinks the second half of the year in the US economy is going to be stronger than the first, which means they think they might have room to taper. Inflation is not out of control; either going too high or too low. Right now, it's less than the 2% target the Fed has, but that's mostly due to what the Fed called transitory reasons. The Fed is going to continue to look at economics and particularly the unemployment rate to try to figure out when to do this.

All in all, if you read the minutes, it sounded like, first of all there was almost no descent; there was only one negative vote, so everybody's pretty much signed on to Bernanke's plan and it sounds like Bernanke's plan is that sometime this fall, either at the September 18 or at the October meeting, the Fed will start to taper. Likelihood is that'll be a relatively small amount almost like a test to see what the market does, but I think that if you read the minutes with some kind of attention, and I think the market did, you decided that taper is still on schedule for September/October and that's why the market sold off on the 21st, as people try to expect this.

Now, the problem with all this, one way or another, is that no one knows exactly; that includes the Fed. No one knows exactly what the taper is going to do going from the $85 billion dollars a month of purchases or treasuries and mortgage-backed assets to something like $75 let's say as a first step. No one knows what that'll do to rates or anything else, and I think one of the strongest reasons to believe the Fed is going to move sooner rather than later is the Fed would like to answer this question for itself. Like to do it before it gets too far down the road, too far mixed up in budget politics, and basically while it still has some chance to do the kind of clean test of what the effects of the taper would be, so the market is expecting mid-September, I'm expecting mid-September. We'll see what we'll get. We certainly didn't get anything from the Fed minutes to disrupt that thinking.

This is Jim Jubak from the Video Network.

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