Fed releases March 19-20 FOMC minutes early

Much to its embarrassment the Federal Reserve had to admit on Wednesday that it had released its March 19-20 FOMC minutes to about 100 lobbyists on Tuesday afternoon, one day before the official release date. As of now, it is not known whether there has been any trading based on information from the leaked document. The minutes have now been posted on the Fed's website.

From what I understand, the wording is still rather neutral without any specific hints at the future direction of the Federal Reserve's asset purchases. According to the minutes, few FOMC members think the programme's costs begin to outweigh its benefits and would hence prefer to reduce asset purchases sooner rather than later:

The staff provided presentations covering the efficacy of the Federal Reserve's asset purchases, the effects of the purchases on security market functioning, the ways in which asset purchases might amplify or reduce risks to financial stability, and the fiscal implications of purchases. In their discussion of this topic, meeting participants generally judged the macroeconomic benefits of the current purchase program to outweigh the likely costs and risks, but they agreed that an ongoing assessment of the benefits and costs was necessary. (...) However, a few participants were not convinced of the benefits of asset purchases, stating that the effects on financial markets appeared to be short lived or that they saw little evidence of a significant macroeconomic effect. (...) In light of their discussion of the benefits and costs of asset purchases, participants discussed their views on the appropriate course for the current asset purchase program. A few participants noted that they already viewed the costs as likely outweighing the benefits and so would like to bring the program to a close relatively soon. A few others saw the risks as increasing fairly quickly with the size of the Federal Reserve's balance sheet and judged that the pace of purchases would likely need to be reduced before long. Many participants, including some of those who were focused on the increasing risks, expressed the view that continued solid improvement in the outlook for the labor market could prompt the Committee to slow the pace of purchases beginning at some point over the next several meetings, while a few participants suggested that economic conditions would likely justify continuing the program at its current pace at least until late in the year.

It is always difficult to interpret the wording of central bank releases, which mostly try to be as neutral as possible in order to avoid introducing excess volatility, but at least there seems to be consensus among the majority of FOMC members that the Fed's quantitative easing programme should be reconsidered over the course of this year. Depending on the further development of macroeconomic indicators, such as an improvement in the next US payrolls data, it is quite possible that the asset purchases will slowly be reduced within the next two quarters. For the time being, currency traders need not fear a sudden end of QE, but in the medium term the Federal Reserve may begin to change course and thereby put pressure on EUR/USD while supporting the upward momentum of USD/JPY.

1 thought on “Fed releases March 19-20 FOMC minutes early”

Comments are closed.