• 287 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

  1. Home
  2. Markets
  3. Other

Were the FOMC Minutes Really That Hawkish?

I suppose I need to say something quickly about the FOMC minutes which were released yesterday, because the markets are seemingly gyrating on a "surprisingly hawkish" reading of them. The dollar is rising strongly, and part of the reason that equities slid in the afternoon yesterday was that it was perceived the Fed wouldn't be endlessly doing QE.

The "surprisingly hawkish" part allegedly comes from this quote:

In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.

Various reports today focused entirely on this phrase. Bloomberg, for example, said "Fed board members said they will probably end their $85 billion monthly bond purchases, known as quantitative easing, in 2013, according to minutes of their Dec. 11-12 meeting released yesterday." Of course, they said nothing of the kind. This paragraph followed an extensive discussion about "several persistent headwinds" including the likelihood of tighter fiscal policy, and "[t]he staff viewed...the risks as skewed to the downside." There is far more negative in these minutes than there is positive. This illustrates the danger of taking a single quote out of context.

But what is even more important is this: the Evans Rule is now parameterized. The statement about when officials think that QE will end is simply a statement about when they think the parameters will be realized. But who cares? Private forecasters are no worse than Fed forecasters! Personally, I thought that we'd breach those parameters fairly quickly, and my note on the subject was called "Objects In Mirror May Be Closer Than They Appear." The error here seems to be that people expected QE-infinity really meant that the Fed would be easing forever, and that was incorrect a couple of weeks ago...not yesterday.

In any event, it doesn't matter because the real question isn't how much more water they add to the vat (that is, sterile reserves) but how (and if) they are able to remove the water that is already in the vat - which is trying very hard to get through the valve into M2. Again, I urge readers who took the end of the year off to look at my piece on this topic, "What Will the Fed Do When It's Finally Time To Tighten?" Money supply is accelerating again, +8.25% over the last year. And European M2 in November (numbers just out recently) accelerated to the fastest y/y pace since 2009.

If this makes investors concerned about the sketchy valuations of fixed income and stocks, then good - those markets are frothy and I will welcome prices where long equity investing holds more long-term promise than it currently does. But the reaction to the minutes, in my view, is mostly a case of people failing to understand Fedspeak.

 

Back to homepage

Leave a comment

Leave a comment