The U.S. Federal Reserve's Federal Open Market Committee (FOMC) meeting minutes from July will be released this afternoon and once again the nation's central bank won't be looking to pull any tricks.
As the Fed's playbook stands now, there will be a $25 billion monthly purchase of agency mortgage-backed securities (MBS) and long-term treasuries until the September meeting, when that number will be tapered to $15 billion. And, as minutes from June's meetings suggest, that last $15 billion will be cut and the policy of quantitative easing will end after the meeting on October 29.
The policy of bond buying began in September 2012 as a way to put downward pressure on long-term interest rates and pour more money into the markets at a time when the U.S. economy needed a quick boost amid a slow-growing, post-recessionary period. It began as a monthly purchase of $45 billion in treasuries, and $40 billion in agency MBS, for a total of $85 billion in total asset purchases.
It wasn't until December 2013 that former Fed Chairman Ben Bernanke announced that this stimulative policy would begin winding down with a $10 billion reduction in these purchases. With every Fed meeting to follow, another $10 billion would be cut from the purchases until the program was ended altogether.
The only change to that script came in the minutes from June's meeting, which revealed that rather than cut $10 billion in October's meeting and continue purchasing $5 billion worth of assets every month until a final round of reductions came at the end of the December meeting, the Fed would just cut the final $15 billion after the October meeting.
All in all, the announcements out of the Fed have been predictable, and current Fed chairwoman Janet Yellen has continued to follow the same path that her predecessor Bernanke handed her when he departed from the post in February.
But even the predictable Fed talk can be felt on Wall Street...
How Fed Minutes Move Markets
Fedspeak, no matter how dry and technical, has the ability to move markets because it gives hints as to what the country's long-term monetary outlook will be.
Even on days when positive economic news is released, the major indexes won't move until given direction from the Fed. This happened before the meeting on July 30, when the S&P 500 was down as much as 7.53 points before the FOMC released a statement, despite news of optimistic economic growth expectations. Within an hour of the Fed statement, the S&P advanced 4.56 points.
"The actual numbers are just the latest figures to come out and we always know there's that next round of numbers," Clifford Rossi, executive-in-residence and professor of the practice at the University of Maryland's Robert H. Smith School of Business, told Money Morning. "The Fed is taking this big picture, long-term view."
While today is not the day of an actual FOMC meeting, Fed policy dictates that the minutes from each meeting be released three weeks after. Today's minutes will be from the July 30 meeting.
The release of these minutes tends to reiterate Fed policy to the markets, which has been dovish as of late. The Fed has yet to announce when it expects there to be interest rate hikes from their near-zero levels, or when the central bank will begin offloading the more than $4 trillion of assets it has on its balance sheet.
So far this year, on dates when the Fed releases minutes the S&P has moved an average of 8.13 points or 0.2% on the day. While on average this is almost negligible, the S&P's 7th biggest one-day advance on the year of 1.09% came on April 9, the day of a Fed minutes release.
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