Just a minute

Ah, the Fed Minutes. If only they contained no Repetition, Hesitation, or Deviation, we’d be able to see the wood for the trees. For all the worry over September tapering, we know they want to withdraw monetary accommodation. It’s not even about when. It’s about what it means after that. The two main takeaways from the Minutes were:

1)  ‘Several’ committee members ‘expressed confidence’ about the recovery. So that’s the majority, then. Even the minority who want to wait and see don’t doubt things are picking up.

2) However, they discussed ‘the potential for clarifying or strengthening… forward guidance’: ‘several participants were willing to contemplate lowering the unemployment threshold if additional accommodation were to become necessary’.

So, they don’t want rates to go up. This is why the period after tapering is more important than when they start. Once it begins, will the Fed really be able to persuade the market that it is NOT the thin end of the wedge?

Oh, forward guidance. Credibility is so key. Memo to new Fed chair – Remember: No Repetition, Hesitation, or Deviation…

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