The Federal Open Market Committee (FOMC) meeting minutes out today (Wednesday) confirmed that the Sept. 17-18 meeting involved more debate than before on whether or not to continue quantitative easing (QE).
All FOMC meeting attendees were in agreement in the decision to pause for a while longer, at least until data confirms a more substantial and sustainable recovery.
Despite the delay, most U.S. Federal Reserve policymakers were of the opinion last month that the Fed will likely begin a taper this year and finish up by mid-2014, according to the minutes.
Although, now with Janet Yellen nominated for the next Fed chair, QE looks like it has a longer stay with us.
Now, most Fed watchers believe a Fed tapering of quantitative easing won't begin until at least well into 2014, if not 2015.
Here's what we did learn from the Fed meeting minutes:
The FOMC Meeting Minutes
Making the case for the postponement, the minutes read, "The announcement of a reduction in asset purchases at this meeting may trigger an additional unwarranted" rise in interest rates "perhaps because markets would read such an announcement as signaling the Fed's willingness to unwind its stimulus notwithstanding mixed recent data."
The sentiment was nearly unanimous.
"All members but one was judged that it would be appropriate for the (policymaking) committee to await more evidence that progress would be sustained before adjusting the pace of asset purchases," the minutes read. (Fed officials are not named in the minutes.)
The committee was divided on the Fed's near-zero interest rate policy. Chairman Ben Bernanke and several colleagues have recently stressed the need to keep rates at rock-bottom levels even after the unemployment rate dips below 6.5% (its previous target).
While members agreed the job market has improved since last year's launch of QE3, they "were not adequately confident" the improvement is sustainable, and they agreed more evidence is needed before a taper begins. The lackluster July and August jobs reports were labeled "disappointing."
Citing mixed to moribund economic data, rising mortgage rates that are pressuring the ailing housing market, and Capitol Hill stalemates, several central bank officials lowered their economic outlook for the remainder of 2013.
"Heightened uncertainty about the course of federal fiscal policy over coming months, including the potential for a government shutdown or strains related to the debt ceiling," is a mounting concern.
Also of note was that some officials acknowledged the "leadership transition" could raise questions about the credibility of its communications. Yet as if on cue, the White House announced late Tuesday that Janet Yellen - referred to by some Fed followers as a "great communicator" - would fill Fed Chairman Ben Bernanke's shoes when he steps down in January.
Market Reaction to FOMC Meeting Minutes Was Muted
Markets' reaction to the Fed minutes was tame.
The Dow finished the session up 26.45, or 0.18%, at 14,802.98. The S&P 500 was up 0.95, or 0.06%, at 1,656.40. The Nasdaq was lower by 17.05, or 0.46% at 3,677.78.
Gold was dragged lower as the dollar and global stocks firmed. Yellen's announcement as Bernanke's successor ends one point of uncertainty plaguing the United States.
But with fiscal headwinds weighing on the economy (courtesy of Congress) and the Fed's loose monetary policy here to stay for a while, gold should benefit. Its appeal as a safe-haven asset will only intensify as we grow closer to a default.
For more on investment strategies related to the FOMC meeting and the related Fed shenanigans, check out Money Morning Chief Investment Strategist Keith Fitz-Gerald's Fed Strategy from Mohammed Ali.
Gold Melts; Fed Minutes Underscore Taper 'Close Call'
The New York Times:
Fed Minutes Show Deepening Divide
Fed Minutes: Decision Not to Taper Was a Close Call