Here's What Economists Will Be Looking For In Today's FOMC Minutes
The minutes will be released at 2:00 p.m. ET today.
The market had a negative reaction after the June 19 press conference — where Chairman Bernanke indicated the Fed might taper asset purchases if certain growth criteria were met.
In a note to clients, Maury Harris at UBS expects the minutes to reinforce tapering.
Another new development at the June meeting was Bernanke for the first time stating that a labor market threshold for terminating any further asset purchases could be a 7.0% unemployment rate. Moreover, he said that threshold could be reached by mid-2014. He mentioned that this new guidance represents “the consensus of the FOMC.” He also added “future policy statements may include elements of this.” We will be watching to see if the June minutes add any additional color on this subject—potentially providing guidance on not only when the Fed will begin to taper but also when it will finish.
Paul Dales and Paul Ashworth of Capital Economics will be looking for clues regarding how recent economic data will be weighted.
In particular, the markets will be looking for anything to substantiate the hint provided in a recent speech by Fed Governor Jeremy Stein that the tapering may begin in September. Stein also suggested that the Fed will not place too much emphasis on the data released between now and September, preferring to base the tapering decision on all of the data released since QE3 was launched late in 2012. That appears to contrast with the signal Bernanke sent at the press conference after June’s meeting that tapering very much depends on the evolution of the incoming news. The minutes may shed some light on the extent to which tapering this year is a done deal.
Eric Green at TD Securities, however, believes robust June job gains will only bolster the Fed's confidence in a fall taper.
The market will be particularly interested in whether the minutes shed any light on the preference among members on the timing or the size of tapering. We do not expect any direct mention of a “consensus” date or size in the minutes, though we suspect that it could provide some characterization on the range of options being considered. Moreover, given the renewed emphasis on forward guidance another important consideration for the markets will be gauging the deliberations on the revised exit strategy and post-QE environment.
Experts have converged on September as the expected tapering announcement.
Eyes will also be on whether Bernanke strikes a more dovish tone in his speech today at a National Bureau of Economic Research Conference.
While Bernanke's speech this afternoon certainly sounds more professorial than policy-inspiring (it's titled “A Century of U.S. Central Banking: Goals, Frameworks, Accountability,” after all), market watchers will nonetheless look for any indication — implicit or otherwise — of the taper timeline and quantity.