Today’s Fed Minutes

The Federal Reserve released the minutes today from its December meeting. This was the first chance they had to evaluate how well QE2 was working.

What I find fascinating about the Fed’s internal debate is how radically different it is from what we’re often told the Fed is thinking or doing. Instead of being the “root of all evil,” the Fed is actually worth listening to.

David Berman notes:

In the policy makers’ view, higher yields aren’t the result of a failed program, called quantitative easing. They are the result of an improving economy, in part at least. They explain:

“In the weeks following the November meeting, yields on nominal Treasury securities increased significantly, as investors reportedly revised down their estimates of the ultimate size of the FOMC’s new asset-purchase program. Incoming economic data that were viewed, on balance, as favorable to the outlook and news of a tentative agreement between the Administration and some members of the Congress regarding a package of fiscal measures also reportedly contributed to the backup in yields.”

I stand by what I wrote just before the November QE2 announcement:

Investors need to understand that QE2 will have a major influence on their investments. The most important aspect is that quantitative easing will help fuel a demand for riskier assets.

More specifically, quantitative easing will aid a shift toward growth stocks at the expense of bonds and value stocks. QE2 won’t affect the direction of the stock market, though that will remain strong, as much as it will alter the market’s internal leadership.

Be careful of some of the commentary you see about the Federal Reserve. Some people just plain hate the Fed and are therefore blind to whatever the Fed does.

Posted by on January 4th, 2011 at 3:52 pm


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