If investors were looking for a great deal of clarity regarding future actions by the Federal Reserve in release of the June meeting minutes, they may have been disappointed. The stock and bond markets have been somewhat volatile since the conclusion of last month's meeting, in part because of confusion over whether the central bank might begin throttling back on its $85 billion monthly asset purchases.
Release of the meeting minutes indicates that timing of such tapering remains an open question. The minutes also indicate that there was a great deal of discussion on how the Fed's intentions should be communicated to the public.
It appears that there was relatively wide agreement on this point: "Many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases."
Missing from the statement
One surprising development following the meeting was that there was more information provided during Chairman Ben Bernanke's news conference on the possibility of slowing of asset purchases later this year, compared to the written official statement from the Federal Open Market Committee.
Why the disconnect? It appears the group couldn't exactly agree on how best to communicate.
They "generally agreed that the committee should provide additional clarity about its asset purchase program relatively soon." The minutes say that "a number" thought the post-meeting statement would be the way to accomplish that. The trouble was that "some saw potential difficulties in being able to convey succinctly the desired information in the post-meeting statement."
So, they left it to Bernanke. The minutes go on to say, "At the conclusion of the discussion, most participants thought that the chairman, during his post-meeting press conference, should describe a likely path for asset purchases in coming quarters that was conditional on economic outcomes broadly in line with the committee's expectations."
Tapering later than thought?
So do we know more now about what the Fed will be doing? John Canally, chief economist with LPL Financial, believes that the minutes affirm that the initial negative reaction in the markets to the possibility of tapering was overdone. "I think they spent a long time on communication in this, about forward guidance and carefully looking at what they are going to try to communicate," says Canally. "I think that kind of shows you how conflicted they are," he adds.
'What we've got here is failure to communicate.'
The classic line from the Paul Newman film "Cool Hand Luke" might also apply to the current situation involving the Fed and the financial markets. Canally says that, after five years of improved transparency and communication on the part of the Fed, this latest episode has been more challenging.
He say, "the Fed's saying it's going to be a while, they might not even taper this year and if they do it's going to be because of a stronger labor market and we're in no hurry to raise rates."
He says the financial markets have had some difficulty distilling the Fed's intentions since Bernanke's testimony to the Joint Economic Committee of Congress in May. That was when Bernanke hinted that the Fed could possibly scale back the asset purchases as early as later this year.
Maybe it isn't so complicated
What economists seem to agree on is that the Fed is being straightforward when it states that its decisions are dependent on data and further improvement in the economy. Indeed, the Fed is looking for the economy to improve over time.
Scott Brown, chief economist for Raymond James & Associates, says the bond market is now pricing in an increase in short-term interest rates by mid-2014. But he notes that's well ahead of what members of the FOMC have indicated.
The latest economic projections from the FOMC say most see that happening in 2015. Brown says "investors have really confused the notion of a tapering and a tightening in monetary policy in general." He says that in the latest minutes, "some of the officials noted that there could be some confusion about this that the tapering could be misinterpreted." Brown says, "That really seems to be the case in my eyes."
Follow me on Twitter @hamrickisms.