Federal Reserve Minutes

Last week, minutes from the Federal Reserve’s latest policy meeting were released, and much like the prior meeting the Fed governors appeared to have a vigorous debate surrounding the efficacy of their quantitative easing programs. While a healthy debate surrounding the economy is normal for these meetings, what’s new is the increase in individual members expressing their personal viewpoint. Over the past few weeks, a number of Fed officials have taken to the media through speeches or interviews to state why or why not monetary easing is effective. Based on market reaction to these sound bites, it appears as though the equity market is more dependent on quantitative easing than the bond market. This may be why stocks sold off immediately after the minutes (which were tilted towards ending QE), and bonds rallied (counterintuitive if the Fed stops buying). Although the Fed’s bond buying does provide support to Treasuries, trading has consistently been based on economic data, not Fed speak. With inflationary data such as the Core Producer Price Index and Core Consumer Price Index below 2% (1.8% and 1.9% year/year respectively), bond investors appear to be quite comfortable with the current market environment. As we move forward, our stance on rates and curve positioning continues to be based on economic data, with employment and wages the main drivers, and not rhetoric.