Earlier this month, the Federal Reserve released the minutes from the latest Federal Open Market Committee (FOMC) meeting that took place in mid-June.
What was most significant was the potential end to the Federal Reserve’s monthly asset purchase program or Quantitative Easing, popularly called QE. Looking back, the Fed has already been reducing QE by $10 billion increments at each meeting since December 2013, to $35 billion a month from a high of $85 billion a month. However, the latest meeting minutes indicated that if the economy continues to generally improve as the FOMC’s members expect, QE could end with a single $15 billion reduction at its October 2014 meeting. The minutes also showed that the Fed plans to clearly specify to the market when its plan ends its bond-buying program.
This has led to wide speculation and analysis by many interested parties. But putting this speculation aside, what do we really know from reading through the minutes? One thing is clear: the Fed is obviously trying to let people know they will have ample warning that it’s going to raise interest rates before it actually does it. However, what the Fed is not saying is when this will happen. If you read through the minutes, you can see they offered no new clues on the timing of an interest-rate increase, with officials saying policy depends most “on the evolution of the economic outlook.”
Another interesting facet of this release was the Fed’s comments on investors’ complacency about risk and reading such as “signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy.” Hopefully we have we learned something from our experiences in the past six to seven years!
Putting aside all the hoopla, I think this should be taken as a step forward. Let’s remember, the minutes clearly showed that much of these comments were the result of continuing economic growth and employment gains. True, we still have a long way to go and nothing is going to change overnight. That also goes for interest rates!
Scott Eckstein is a Director of Account Services at Financial Relations Board and brings over 15 years of experience in financial communications both in agency and corporate roles. Scott has worked with a number of companies developing integrated communications programs as well as developing targeted institutional and retail branding campaigns. He has also provided advisory services for a variety of small- to large-cap companies.