Fed Minutes Lift the Market

The market was rattled three weeks ago after the last Federal Reserve meeting. Today, the Fed released the minutes of their March 18-19 meeting (the full transcripts won’t be released for another five years).

I should back up and explain that we’re in an unusual moment in the economy. The Fed has made it clear that it intends to continue its tapering policy this year, and nothing’s going to shake them off that path. As a result, the actual Fed meetings aren’t as important as they used to be. In their place, I think investors are placing greater weight on the more detailed Fed minutes, which come out three weeks after each meeting.

What spooked investors in March was the Fed’s SEP, their Summary of Economic Projections. When that came out, it was widely interpreted as being a chance to a more hawkish stance, meaning that the Fed was leaning towards raising rates sooner than expected. But in the Fed minutes we learned that some Fed members were concerned that the SEP would be incorrectly interpreted as hawkish.

Here’s the relevant part, and I apologize for the econo-speak:

A number of participants noted the overall upward shift since December in participants’ projections of the federal funds rate included in the March SEP, with some expressing concern that this component of the SEP could be misconstrued as indicating a move by the Committee to a less accommodative reaction function. However, several participants noted that the increase in the median projection overstated the shift in the projections. In addition, a number of participants observed that an upward shift was arguably warranted by the improvement in participants’ outlooks for the labor market since December and therefore need not be viewed as signifying a less accommodative reaction function.

In other words, there was no change at all in the Fed’s thinking. As a result of today’s minutes, the stock market has gapped higher and the S&P 500 is still holding on to those gains. The index is back over 1,871. Small-caps and Cyclicals are leading the charge, and Growth is crushing Value today (although both are up). But remember that Value been owning Growth for the last month.

Stay tuned: BBBY reports after the close.

Posted by on April 9th, 2014 at 3:52 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.