Your Ultimate Preview To Wednesday's Unusually Important Fed Minutes
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When it comes to the Federal Reserve's monetary policy meetings (Federal Open Market Committee), most of the important information is published at the end of the meeting in the form of a brief statement. However, ever since Chairman Ben Bernanke signaled in May that the Fed could soon taper its $85 billion of monthly bond purchases, economists have been carefully combing through every last clue coming from the FOMC and its members.
"While we still expect tapering to begin in Q4, with a “pre-announcement” at the September 18 FOMC meeting, we expect the July 30-31 minutes to keep alive the debate about timing," said UBS's Maury Harris.
Indeed, some Fed-watchers have noticed some subtle inconsistencies in the Fed's language about tapering and its timing.
"Recall that the July 31 FOMC policy statement communicated no bias to taper asset purchases later this year," noted Credit Suisse's Neal Soss. "The omission was notable, given that just six weeks earlier, after its June 19 meeting, the Committee deputized Fed Chairman Bernanke to discuss its conditional plans to scale back the pace of asset buying, with a view to potentially ending its purchases altogether by mid-2014. With no mention of these tapering expectations, the July 31 policy statement was considerably more dovish than it would have been otherwise."
So what was with that omission?
"Our assumption is that most policymakers at the time still expected to taper QE3 purchases as soon as September, but they were reluctant to put these plans in writing, preferring instead to leave their options open," added Soss.
However, if the markets assumed that the omission was a dovish signal, than they'll probably be taken aback if we do hear about tapering in the minutes.
"The minutes are likely to sound more hawkish – recall that has been the case all year long, in part because they givea platform to more hawkish non-voters – which presents a risk that markets will again sell off on the minutes," warned Michael Hanson of Bank of America Merrill Lynch.