Today’s FOMC Minutes from the June 21 to 22 Fed meeting may have had a small impact in the markets today, but the real question is whether or not two-week old data should matter when a mountain of new data has hit since then. If you read through these minutes, it appears that some additional quantitative easing is not opposed by all members of the Federal Reserve even though the exit strategy principles were outlined.
The reason this mattered is because of the quote, “… the committee might have to consider providing additional monetary stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate…”
In short, QE3, or some derivation of it is not entirely off the table. Before you think that there is NO quantitative easing today, remember that the proceeds of roll-offs and maturities are still available for reinvesting. We have already argued that the end of QE2 should be factored into the markets. That means that the current QE2.5 is somewhat factored in, but what is not factored into the markets is a QE3.
A balanced report also notes that inflationary pressure is still viewed high enough that it may have to take action against inflationary pressure. The long and short is that you can’t have it both ways.
The stock market would cheer more stimulus. The bond market would not. You can read the full minutes here.
JON C. OGG
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