FOMC Minutes Signal Tapering, More Than Recent Commentary

The latest Minutes from the Federal Reserve's October 29 to 30 FOMC meeting are indicating that tapering the $85 billion per month of bond buying could start in the coming months. This sounds significant in writing, but more recent comments have indicated that easing measures can remain in place longer. That is particularly true if Janet Yellen gets confirmed as the next Chairman of the Fed as Ben Bernanke's replacement.

One key observance is that the government shutdown seems to have had a limited and temporary impact. A key issue here was that a repeated financial impasse over debt ceilings could damage business confidence and consumer confidence.

A number of Fed officials prefer equal cuts to Treasury debt buying as well as Mortgage Backed Securities. Others preferred to cut Treasury buying more than mortgage paper buying. A couple of fed officials were shown to also be in favor of lowering the target unemployment threshold down under the current 6.5% threshold target, although some warned that it could lower the Fed's credibility.

Another development was changes to forward guidance acting to improve visibility, particularly after the 6.5% unemployment threshold was achieved. Most Fed officials believed that a reduction in interest paid on excess reserves is worth considering.

A few officials would also like a floor put in place on an inflation target. Anyhow, the markets reacted negatively to the comments because of a tapering concern. Just keep in mind that a Janet Yellen Fed will be very accommodative and easing measures will be the go-to answer for any hiccup.

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Filed under: Economy