Macro Wrap – FOMC Minutes This Week

by Enis February 19, 2013 7:59 am • Commentary

When the Federal Reserve released its December minutes, the market had a bit of a mini-scare, as some members indicated that QE should end at some point in 2013.  All asset markets sold off together in fear of an end to the easy money program earlier than expected. However, in the most recent Fed release, there was no change in tone and little mention of a potential end to QE over the next 6 months.

As a result, the FOMC minutes released on Wednesday are unlikely to offer the market a similar scare.  At this point, market players have been desensitized to any fringe members making comments about the dangers of QE.  Clearly, Bernanke is driving the bus, and he wants the unemployment rate closer to 7% before the monthly QE purchases end.

This is the 40 year chart of the unemployment rate:

40 year chart of unemployment rate, courtesy of Bloomberg
40 year chart of unemployment rate, courtesy of Bloomberg


I’ve drawn a red line at the 7% unemployment rate.  It’s generally been below the line more than it has been above it, but 7% seems a ways away in the current environment.  Perhaps most importantly, the U.S. labor force is starting to see the participation rate start to increase again, meaning workers previously considered out of the labor force are re-entering.  That will keep the unemployment rate from moving lower, even if the economy is adding jobs at a decent clip each month.

In short, I don’t expect the removal of QE at any point in 2013, barring a surprising move lower in the unemployment rate (that would likely need a fall back in the participation rate).  The market has similar expectations, and any hawkish talk in the minutes is likely to be ignored for now.

Markets overnight:

  • On Monday and Tuesday, Japan was generally strong, and China weak, as Chinese markets re-opened after the Chinese New Year.  
  • Europe has had a strong start to the week, up 1-2% between yesterday and today.  German confidence numbers today registered a 3 year high.
  • SPX futures are up 0.2% from Friday’s close.  The dollar and Treasuries are close to flat.  Commodities are mixed, with copper down 1.5% as the standout.
  • Only notable data release today is the NAHB Housing Market Index at 10:00 am EST