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June FOMC minutes don't much alter taper narrative

EconomyJul 07, 2021 02:56PM ET
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© Reuters. FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

NEW YORK (Reuters) - Federal Reserve officials last month felt that substantial further progress on the economic recovery "was generally seen as not having yet been met," though participants expected progress to continue, according to the minutes of the U.S. central bank's June policy meeting.

"Various participants" at the session still felt conditions for reducing asset purchases would be "met somewhat earlier than they had anticipated," while others saw a less clear signal from incoming data, said the minutes, where were released on Wednesday.



** The S&P 500 added to slight gains and was last up 0.33%

** The 10-year U.S. Treasury note yield was unchanged at 1.3196% after hitting a 4-1/2 month low below 1.30% earlier. The yield on the 2-year note slipped to 0.2161%

** The US dollar index pared its gain to 0.079%



  "It wasn't a big change. I don't think there's any big takeaways from this other than they are going to begin talking about tapering at the next meeting officially, which is not unexpected. And whether they do it lock step with buying mortgage-backed securities and treasuries or they slow down more of their mortgage-backed securities buying that's yet to be determined."

"It looks like they're setting the market up for an announcement on cutting back from this bond buying sometime toward the end of the third quarter or early fourth quarter."


     "We know a split is emerging among the FOMC. We know a majority of them have revised up their growth estimates. We know where the difference of opinion lies on inflation and really how comfortable they are with inflation rising as it has and what to expect going forward. It also reveals maybe a little bit of a different view on the look-back period regarding inflation, like over what time do we average inflation."

    "Where the split lies in my opinion, it's not really on the growth front it's really the inflation front. We knew that to some degree. It just underscored it."


“Today’s minutes were probably less dovish than investors anticipated, because initially some people had thought they would downplay the positive outlook from the FOMC meeting itself. But today’s minutes only serve to confirm that the Fed is going to be reducing asset purchases sometime this year most likely and I think that the dollar’s reaction is muted because we are coming off some softer economic reports, like the ISM number, and yields are down 2% today on the 10 year basis. But overall, I don’t think that today’s number stands in the way of the resumption of the dollar rally against the Japanese yen and even against the euro for that matter, because we’ve see more data disappointments in the eurozone. So, bottom line is, there wasn’t a big reaction, but I don’t think it stands in the way of an extension of the gains in the dollar.”


“We’ve seen the dollar give back some of its gains in the wake of the Fed minutes. With respect to tapering, it seems that the timing remains uncertain when officials will commence tapering policy. I would say the one thing that caused the dollar to lose a little bit of momentum was that the Fed acknowledged that the economy still hasn’t attained substantial further progress…I would say that the Jackson Hole venue is still alive, its just that the June Fed minutes were inconclusive on the timing of when tapering would commence.”

“If you break down what’s transpired in the economy since the last Fed meeting, one is that the fears over inflation have subsided, while at the Fed policy meeting apparently a substantial majority of Fed officials saw risks to the inflation outlook to the upside. So I think its kind of taken the edge of their hawkish stance on inflation.”


"I don't think they've yet figured out what it is they'd like to do. And the presumption that people have - that it will be MBS first - they clearly say that some people don't think that way.

"Basically, the committee's debate on taper was non-committal, as the post-meeting policy statement made clear. There was also no clear bias for beginning with MBS over Treasuries at some point in the near future.

"The tone and substance of the FOMC's meeting did not provide support for the street's hawkish takes on the dots or the SEP.”


“The real takeaway I got here was most of the participants are talking more about uncertainty. Some are feeling better, some are feeling worse. But the consensus seems to be that there is just too much uncertainty to really make a call and that to me spells they are going to continue to be cautious and continue policy the way it is.”

“I read this as effectively a dovish set of notes simply because they don’t feel as a group that they have enough certainty around the situation to make any changes at all.”

“Markets reacted a couple of weeks ago and said, ‘Oh my god, they are going to taper,’ and in fact what you are seeing is they have no intention of tapering. They are exactly where they were before: We don’t know exactly what is going on, there is a lot of uncertainty and we are going to keep doing what we’re doing until we actually see evidence-based results, which they don’t see yet.”


“It doesn’t seem (the Fed) rocked the boat too much, there’s talk about easing up on asset purchases and that’s not much of a surprise. We’re not getting a massive reaction here. Nothing out of the ordinary.

"‘Transitory’ is a word we’ve heard time and time again, and they’re kind of easing away from that, they are opening the door to the idea that inflation might be here a little longer. The Fed’s like a family and clearly they’re not all agreeing, but that’s been the word from Chairman Powell and there’s no major changed toward taking that away.”


"Today’s FOMC minutes revealed a substantial dispersion of opinions among Committee members, as it has become increasingly difficult to ignore the vast improvement in the domestic economic environment, as well as the better virus/vaccine-related conditions."

"Monetary policy recalibration is now on the table, as the FOMC becomes genuinely more data dependent and less calendar dependent. The Minutes today reflected a Committee that has started to shift its emphasis from realized economic outcomes to a more outlook-dependent reaction function. The upside/downside surprises for relevant economic indicators should now lead financial markets to adjust the distribution of outcomes with respect to tapering asset purchases and eventual lift-off from zero interest rates."

June FOMC minutes don't much alter taper narrative

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