NEW YORK, May 19 (US News & World Report) - Benchmark U.S. Treasury yields rose and Wall Street stocks felt added selling pressure on Wednesday after minutes from Federal Open Market Committee's April meeting showed some policy makers appeared ready to talk about tapering their bond-buying program in upcoming meetings.
A “number” of Fed officials appeared ready to begin considering changes to monetary policy based on continued rapid progress in the economic recovery, according to the minutes, but data since then may have already changed the landscape.
Comments from Fed officials since the April 27-28 meeting have indicated that if anything the employment data from April cemented the view that it was still too early to discuss changes to the Fed’s $120 billion in monthly bond purchases. Discussion of raising the central bank’s benchmark overnight interest rate from the current near-zero level is even further down the road.
The rise in yields on Wednesday also sent the U.S. dollar index higher.
COMMENTS
MICHAEL BROWN, SENIOR ANALYST AT PAYMENTS FIRM CAXTON, LONDON
“I think it is an over-reaction to be honest. Not only because of the jobs data, but because the minutes can always place too much emphasis on a couple of hawkish outliers on the committee which in turn sees the market place too much weight on their remarks. I’d like to hear this from Clarida/Powell before getting too excited. Still, it’s undeniably the first very gentle step towards tapering, and signaling that they’re moving that way, but that can’t come as a surprise given the economy re-opening, inflation coming in hot, and the recovery speeding up.”
RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES FOR CHARLES SCHWAB IN AUSTIN, TEXAS
“I didn’t really expect the minutes to have a huge change, because usually the minutes only confirm from what we already knew from when the meeting actually happened, they don’t usually provide a whole lot of surprises. Since they come out late in the day, they will have an impact on the last hour of trading.
Usually you do get a knee jerk, but it was almost four minutes before anything happened at all, which is kind of odd. Generally the initial knee-jerk on almost any news seems to be in the wrong direction, and then it will retrace, which we’ve seen. Now it is kind of a wash. In volatile times like this when you have these kinds of moves on any given day of one percent or so, this is a pretty de minimus move, is probably a good way to put it.
I don’t see anything that is surprising in there, the market tends to get really sensitive to almost any news when it is in a real jittery phase like it is in now. But you could probably go back to almost any Fed minutes release and see a quick knee-jerk reaction at that moment, this one being delayed was probably the most unusual thing about it. By the end of the day, I would say that by the time the market closes it will be a non-event.”
KATHY BOSTJANCIC, CHIEF U.S. FINANCIAL ECONOMIST, OXFORD ECONOMICS, NEW YORK
“They were thinking about thinking about tapering (quantitative easing) asset purchases if the economy continues on this rapid recovery and they get closer to meeting the dual mandates. Our view is they probably pre-announce tapering at Jackson Hole in August and they actually start to taper back the asset purchases at the beginning of next year.”
“On inflation, it’s a bit dated because it precedes the April consumer price report and also the latest University of Michigan consumer expectations measure, along with the NFIB, the business sentiment that showed companies both raising prices and wages.”
JOHN DOYLE, VICE PRESIDENT OF DEALING AND TRADING, Monex INC, WASHINGTON
“The dollar looks to be the main beneficiary of the Fed minutes. The headlines that are grabbing traders’ attention is about the possibility of “taper talk” at upcoming meetings. I don’t think anybody still believes that the Fed will leave rates on hold until the end of 2023 and the rumblings around taper talk might be the beginning of the Fed trying to give markets guidance that policy changes will have to be made at some point. The dollar’s move may prove to be a knee-jerk reaction, however.”
MARK LUSCHINI, CHIEF INVESTMENT STRATEGIST, JANNEY MONTGOMERY SCOTT, PHILADELPHIA
“If anything hinted that they’re at least talking about talking about tapering it would be coincident to market participant nervousness already about the prospects of inflation encouraging the Fed to shift to a more hawkish stance,”
“There seems to be an observation in the Fed minutes around the rally in equity prices. What might be worrisome for market participants is whether elevated prices and some of the speculation you’ve see in fringe assets lead the Fed to change their monetary policy even with a lack of progress in achieving their inflation target,”
“Anything short of reinforcing the uber-dovish stance the Fed has had is, at a time when the market is already getting a little jittery with regard to inflation, is what’s compounding the selloff which could have been catalyzed by next to anything. This just happens to be the excuse du jour. But there’s nothing in these minutes that really changed anything in my view relative to the Feds impending posture.”
(Compiled by the U.S. Finance & Markets Breaking News team)
