What to expect from the July Fed minutes

thenews 2013.08.20 19:42

How close is the Federal Reserve to tapering? Was the central bank having any second thoughts about making a first move at its meeting in September or were they just nailing down the details?

Financial markets will be poring over the minutes of the Fed’s July meeting for clues on these key issues, when they are released at 2 p.m. on Wednesday.

Avery Shenfeld, chief economist at CIBC World Markets, thinks that Fed watchers don’t need microscopes this month.

Recent speeches by Chicago Fed President Charles Evans, St. Louis Fed president James Bullard, and Atlanta Fed President Dennis Lockhart have shed a lot of light on the internal debate at the central bank, he said.

“We know a lot about what they think individually. I can’t see how the minutes are going to add clarity,” he said.

The debate at the Fed can be boiled down to two faction, Shenfeld said.

One camp clearly sees a September taper as a “sure bet,” while the other might be willing to move at that meeting but want to see more data.

Still, many other Fed watchers say there insights to be gleaned from the minutes.

Some think the Fed will talk about “logistical issues” if they intend to taper in September.

These include discussion of the size of the initial reduction in asset purchases and whether they concentrate on cutbacks in Treasurys or mortgage-related assets.

“If policymakers are preparing to act on tapering as soon as September, we would expect the minutes to indicate that policymakers addressed these issues in detail in late July,” said Ward McCarthy, chief financial economist at Jefferies, in a note to clients.

“We expect that the minutes will discuss tapering logistics in only a broad and vague fashion. The Fed is headed toward tapering, but there are no signs that it is in a rush to do so,” McCarthy said.