Fed Minutes Boost Stocks — For Now

The Fed released the minutes from their late-July meeting today. The market’s quick take is that the minutes are dovish as the rest of the FOMC seems lined up behind Bernanke’s timeframe for winding up Quantitative Easing.

As I’ve said before, reading the Fed’s minutes is a study in the art of indefinite pronouns. Some say this, a few say that. Here’s the key line that folks are looking at:

First, almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June postmeeting press conference and in the July monetary policy testimony.

That seems reasonably clear that something maybe, possibly, could happen next month. I disagree with the conventional wisdom that higher interest rates are due to tapering talk. Some of it, sure. But probably not very much. One of the concerns of too much QE is that it forces investors to take on more risk than they should by hunting for yields in junk bonds. Still, the consensus is that the Fed will start tapering next month.

My guess is that the initial claims report had a big impact on the Fed. The Fed believes that growth will pick up for the second-half of this year. I hope so but we should bear in mind that the Fed is often overly optimistic with its forecasts.

Posted by on August 21st, 2013 at 3:32 pm


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