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Fed Minutes Already Old News?

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Wednesday, April 10, 2013

The earlier-than-expected release of the minutes of the Fed’s March meeting add a bit of surprise to today’s trading session. But the FOMC deliberations were likely overtaken by subsequent economic developments. Last week’s underwhelming economic data has likely strengthened the hands of Fed doves, making minutes mid-year timeline for the QE program moot.

The Fed aside, there is not much on the economic docket. We have overnight news of a positive-looking bigger-than-expected trade deficit number out of China. But that country’s first quarter trade data is typically not that reliable, given the seasonality distortions created by the Lunar New Year. All in all, we will likely have a quiet trading session today.

China’s March trade data overnight showed a surprise deficit of $884 million vs. consensus expectations of $14.7 billion surplus. The March deficit follows the $15.25 billion surplus in February.

Rising imports that caused the March deficit could prove a major boost for China’s trading partners going forward and would be a strong signal of the domestic demand strength. But we will need more trade data to confirm that trend given how the country’s import numbers get distorted in the first few months of the year by the Lunar New Year. That said, total imports for the first three months of 2013 are nicely up from same period last year, indicating that outlook for China is steadily improving.

Minutes of the Fed’s March meeting came out early this time and they seem to indicate greater support for changing the $85 billion a month bond purchase program beyond mid-year. The greater support for this plan is an interpretation of the ‘all but a few’ FOMC members that minutes indicate want to keep the current QE program through mid-year.

This is new and indicative that the ‘hawks’ were gaining more support on the FOMC for their stance. But that was in March, when all economic data was pointing to strong momentum in the economy. Last week’s data, particularly the disappointing non-farm payroll report from last Friday, is pointing towards another episode of ‘Spring Swoon.’ It is hardly a given that the ‘all but a few’ on the FOMC who were willing to give the QE program only till June will stick with that stance knowing that the economy was losing stance.

The ‘hawks’ on the FOMC believe that the QE program does more harm than good. It will be interesting to know whether they continue with that stance even after they see that the economy’s footing was a lot more weaker than earlier data indicated. We can be confident, however, where FOMC ‘doves’ stand on that question. And it is reasonable to assume that the Bernanke and Dudley duo carry a lot more weight on the FOMC than the others.

Sheraz Mian

Director of Research

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