Minutes released from the last Fed meeting have sent markets into a dive. The minutes in question can be found in full here, but this is the really important bit:
a number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labour market had occurred
In other words, it has become official that there might (just might) be a limit to the amount of money the Fed hands out. At the moment it’s about $85bn a month, and a number of national banks had seemed to believe this could go on for ever. Here’s James Mackintosh in the FT:
the scale of the belief in the Fed’s willingness to print money is unprecedented, and backed up by loose policies from the Bank of England, Swiss National Bank and, investors expect, Japan. Only the European Central Bank resists.
So some believed, some doubted, but now Schrödinger‘s box has been opened, and the cat is a real cat, and not in fact the kind that will live forever. Cue panic.
Well it’s kinda maybe been opened. Some people think the comments may have been misinterpreted. Here’s Sean Callow of Westpac, in a note to clients:
“We wouldn’t leap to conclusions over the trajectory of QE4, which Fed officials in recent days have suggested would likely be sustained at least into the second half of 2013”
So what’s the takehome message? Well, the fact that the markets reacted so dramatically on the news suggests a worrying vulnerablity to the odd ambigious comment from a Fed policymaker. Must be nice to have all that power.
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