The 8 men and 4 women crouched around the massive oak table, concerned. They knew not what awaited them. The future rested in their hands in these most uncertain times. They debated whether to tell the masses in their brief statement, alerting them to unresolved fiscal issues or the need to curtail their expansionary programs. Ultimately the space in the statement was limited, this news would have to be revealed in the meeting’s minutes compiled 3 weeks later.
And so it was discovered last Tuesday and markets were caught off-guard. Sellers capitulated and sent prices down in a flurry. Everyone was shocked, sending volatility through the roof. Stocks gyrated for a week before markets finally calmed and returned to their previous levels.
FOMC Minutes: When drafting the statement on January 30th, “members discussed whether to include a reference to unresolved fiscal issues, but decided to refrain.” Also the “likely efficacy and costs in its asset purchase decisions, but the committee decided to maintain the current language pending a review, planned for the March meeting, of its asset purchases.” It was certainly these two withheld topics on January 30 that surprised the market today, with the March reviews of the FOMC’s asset purchases ultimately the most important.
In short, The production of motor vehicles increased considerably in the 4th quarter, while manufacturing was not discussed other than exports, seeing increases in activity going out to China and Mexico but certainly not Europe. GDP growth is also expected to pick up in China. Home prices gained as sales of existing and new homes increased, noted several times throughout. There were no worries over any type of inflation. Financial market conditions improved on whole. Also included, “The outstanding amount of unsecured commercial paper issued by European financial institutions increased notably.” Center stage was the discussion over the ending of their asset purchase program, which many regard as risky and laden with unintended consequences. Suggesting that they might end this program before they heal the labor market to their ideals, a sector where they see improvement in the coming months and a normal rate of 5.2 – 6% unemployment. It could be unusual to take the patient off life support before they fully recover, threatening this recovery, however and sign that the market can stand on its own is a very good sign.
- Market expectations for first increase of fed funds rate: 3rd Quarter, 2015
- Most Likely time to end the asset purchases: 1st Quarter, 2014