Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Ok not literally (checks self for squid like characteristics) … but in terms of more easing. It is quite simple. To replace Operation Twist, something new needs to come in. Otherwise in Bernanke’s world it is tightening. And he has said the economy still needs help. So if you have a policy out there, and it ends – you are constricting / tightening. Not going to happen from this viewpoint.
What it means for markets in the next few minutes, days, weeks, et al, and all – who knows. But watching the market cheer for a bad assessment of our country’s economy so there is more easing is sort of sickening – you could see the indexes get rocked each time CNBC’s Liesman said something positive from the FOMC minutes this afternoon- pathetic. It also shows you how little of this market is based on actual old fashioned data anymore – it’s mostly about intervention and the chances of more of it…or not. It’s going to be a very scary environment some day when the Fed actually tightens.
Anyhow, Twist ends in June, and a Fed meeting happens in June. It’s pretty simple. Goldman agrees, per ZeroHedge.
BOTTOM LINE: March FOMC minutes make easing at April meeting unlikely without substantial deterioration in the outlook. However, an announcement of additional asset purchases remains our baseline, with June the most likely timing at this point.
MAIN POINTS:
- Minutes from the March 13 FOMC meeting showed that the committee did not discuss monetary easing options in detail, in contrast to our expectations. However, “several participants suggested that it could be helpful to discuss at a future meeting some alternative economic scenarios and the monetary policy responses that might be seen as appropriate under each one, in order to clarify the Committee’s likely behavior in different contingencies”. This may point to a staff presentation on easing options at the April 24-25 meeting.
- In their discussion of current policy, only “a couple of members” said that additional stimulus could be needed “if the economy lost momentum or if inflation seemed likely to remain below its mandate consistent rate of 2 percent”. The lack of support for immediate easing among current voting members suggests that any action at the April meeting is unlikely. However, we would note that “a couple” likely understates support for easing among Fed officials because presidents Evans and Rosengren—both of whom we think would probably be sympathetic to more action—are not currently voting members of the committee.
- Officials’ views on the outlook were only a little more upbeat than previously. The minutes noted that “the economic outlook, while a bit stronger overall, was broadly similar to that at the time of their January meeting”. The Fed staff revised up its forecasts “a little” for the near-term and “somewhat” over the medium-term as well. The discussion of labor market developments at the meeting mirrored Chairman Bernanke’s speech from March 26.
- Finally, the minutes said that the FOMC was still considering “potential further enhancements” to its communication policies, after introducing press conferences and an expanded Summary of Economic Projections (SEP) in the last year. We think this would include more information about the committee’s reaction function.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
