The volume of articles written after the FOMC minutes has matched the volumes written before the publication of the minutes, but only just. Many analysts will have been busily dissecting the narrative since it’s been published, in order to look for hidden ‘code’ as to when and if the Fed will begin to draw in its horns regarding its asset purchase scheme.
But the bad news (for those looking for some code and clues) is that the Fed have announced nothing new, they’ve stuck to their guns. We’ve selected three key passages here for our clients to read that emphatically sets out the current position.
We’ll start with the one critical paragraph that puts a lid on the speculation that has run riot over recent days. A paragraph that should be taped to the monitors of the thousands of analysts who continue to speculate on the timing of the tapering;
NO CHANGE IN THE STANCE ON BOND BUYING:
“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.”
The committee have decided to talk less on the subject of asset purchases
“The Committee also considered whether to add more information concerning the contingent outlook for asset purchases to the policy statement, but judged that doing so might prompt an unwarranted shift in market expectations regarding asset purchases.
“The main USA markets continued their recent fall after the publication of the FOMC minutes, as they had done for the majority of the New York and European trading sessions. The DJIA finished the session down 105 points at 14897, smashing through the critical psyche number of 15,000.”
Fed committee members still remain unconvinced regarding the labour market improvements
“The June employment report 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.”
So there we have it, three critical paragraphs that sets out, beyond any reasonable doubt, the current mindset of the united FOMC members. The underlying message appears to be that despite easing of $85 billion per month they remain unconvinced regarding the strength of the USA’s economic recovery.
Will that stop the never ending speculation, day after day, week after week? Unlikely. However, over recent weeks we’ve seen evidence of how the markets react to the rumours regarding tapering of the monetary easing. How they’ll react once the eventual tap is turned off is not up for debate given that the stilts being use to prop up this this market will eventually be unceremoniously kicked away. Once the stimulus is removed it will leave many market bulls and particularly private investors who bought the index too late with the safety of the herd, scrambling for a foot hold. It could get very ugly…