FOMC meeting minutes
Fed Meeting at Jackson Hole Often Brings Market Fireworks; Here's What to Expect
Thursday, Aug. 22 marks the start of the annual Fed meeting at Jackson Hole, WY - although this one will be much different than those of years past...
Every year since 1981, the U.S. Federal Reserve Bank of Kansas City has invited a slew of economic luminaries to its annual symposium in tony Jackson Hole.
The Jackson Lake Lodge, nestled among two lakes on the Willow Flats that front the imposing Teton Range, can host central bankers from any one of the world's largest economies, as well as cutting-edge economic thinkers and theorists from global academia.
Global market- and bank-watchers look to the Fed meeting at Jackson Hole as a source of critical information regarding potential shifts in macroeconomic policy.
Investors look to the meeting to bring a healthy, if fleeting, shot in the arm to the markets and share prices. Nearly any unexpected remark or errant word coming from the proceedings has the ability to rock the markets.
Why’s There So Much Dissension Inside the Fed?
There's considerable dissension within the ranks at the Federal Reserve, with many of Chairman Ben Bernanke's colleagues saying the Fed's monthly purchase of $85 billion in bonds should end by late this year.
"About half" of 19 Fed members "indicated that it likely would be appropriate to end asset purchases later this year," according to minutes of the June Fed policy-making committee meeting, released Wednesday.
Ending QE3 could have enormous implications for the stock market - whose four-plus-year bull market has been buoyed by the central bank's stimulus - and for the economy as a whole.
But while there's growing sentiment inside the Fed to end QE, a majority of the 12 voting members of the policy-making Federal Open Market Committee hope to extend the bond-buying into next year.
Still, the Fed's June 18-19 meeting could prove to be a turning point, given the amount of discord at the meeting.
The minutes add some context to Bernanke's comments at a press conference immediately after the meeting in which he said the Fed could begin scaling back QE3 this year and end it altogether by mid-2014.
The markets dipped immediately after Bernanke's comments but then recovered some.
"They're Making It Up As They Go Along"
"To me, the real news is that you've got dissension inside the Fed now," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "My initial read is there's a lot more dissension than usual.
"And," Fitz-Gerald said, showing his longtime disdain for the Fed, "the level of dissension reinforces the notion that they don't know what they're doing and they're making it up as they go along."
Money Morning Capital Wave Strategist Shah Gilani, meanwhile, said the June FOMC showed legitimate concerns among members.
FOMC Meeting Message: Don't Blame Us for Sluggish Economy
The Federal Open Market Committee (FOMC) meeting concluded today (Wednesday) with one clear message to Washington: Thanks for the lousy economy.
Central bank members cited only "moderate" expansion in economic activity and a slow improvement in the stubbornly high unemployment level.
Acknowledging the economy is moving at an unhurried pace, the FOMC members pointed an accusing finger at Capitol Hill.
"Fiscal policy is restraining economic growth," the statement read. That remark was in direct reference to a deadlocked Congress, sequestration and its far-reaching impact.
A spate of fresh economic reports back that sentiment:
FOMC Meeting Minutes Signal These Investment Moves to Make Now
It's clear from the leaked Federal Open Market Committee (FOMC) meeting minutes that the Fed isn't taking away the punchbowl quite yet - but investors can take steps now to be prepared for an eventual sign that quantitative easing will end.
The FOMC meeting minutes show the central bank remains divided on when to end QE and raise interest rates.
The Fed's current policy of buying $45 billion in Treasuries and $40 billion in mortgage-backed securities monthly will remain in place at least through midyear. Near-zero interest rates also look safe until 2015.
The Fed has held short-term rates at historic lows since 2008, with a goal of juicing the anemic U.S. economy. The Fed minutes reiterated that Bernanke and company will keep rates super low until the unemployment rate dips below 6.5% or inflation rises above 2.5% a year.
The monthly March jobs report, released after the March 19-20 Fed meeting, showed a significant slowdown in job creation. While the unemployment rate ticked down to 7.6% from 7.7%, the rate decreased largely because a huge number of people stopped looking for work.
The glum employment data could even extend the Fed's 2015 date to raise interest rates.
FOMC Meeting Minutes: Will We Ever See QE3?
Investors were anxiously listening today (Wednesday) to see if the Federal Open Market Committee (FOMC) meeting minutes gave any hints the Fed may engage in a third round of quantitative easing (QE3) to bolster the ailing U.S. economy.
But no such clues were shared.
Last month the Federal Reserve decided to extend Operation Twist, a bond maturity extension program. But many investors wanted a third round of asset buying, or QE3, instead of more twisting.
Immediately following details of the June FOMC meeting, the Dow Jones Industrial Average, which had been choppy all day, was little changed. Then came the negative reaction and all three major indexes ticked lower, and the VIX, the "fear index," edged higher. The Dow fell as much as 90.14 points, or 0.7%, to 12,562.98 in afternoon trading.
Though QE3 is not completely out of the question, things need to deteriorate further for the Fed to even consider more bond purchasing as a means of stoking the economy, according to the FOMC meeting minutes.
Just four Fed officials referred to more quantitative easing in their individual forecasts, with two in favor and two considering another round.
Had that FOMC meeting been held today, maybe more officials would have supported a heavier stimulus measure. Since that meeting, fresh data have shown manufacturing is weak and unemployment levels are still elevated - and look to move higher.
In addition, economists have drastically reduced second-quarter growth estimates amid the weaker-than-expected numbers.
This has left scores scratching their heads asking how much worse things need to get before the Fed makes a move.
The minutes also show that several Fed officials want to create "new tools" to ease financial conditions. With little left in their cache to give the economy a much needed boost, "new tools" are warranted, but scarce at best.
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