Federal Reserve officials saw diminishing economic benefits from the central bank’s bond buying program and voiced concern about risks to financial stability, according to minutes of their last meeting, when they took the first step to cut the pace of purchases.
This is going to be a big week for the Federal Reserve. On Wednesday, the Fed will publish the minutes of its July Federal Open Market Committee (FOMC) meeting, which should offer some color regarding the Fed's view on the labor market. On Friday, Fed Chair Janet Yellen will speak at Jackson Hole, where the theme of this year's Economic Policy Symposium will be "Re-Evaluating Labor Market Dynamics."
Via Scotiabank's Guy Haselmann, If I had to simplistically decipher the Fed’s (often mutating) communication, I suspect that the FOMC is trying to convince markets that it is looking at a multitude of factors and will act accordingly when they deem it necessary. I suspect its efforts to discuss various contingencies are attempts to convince markets that it is flexible and open-minded in a highly uncertain world. Theoretically, such a position makes sense.
Today we are fortunate to have a guest contribution written by Joseph E. Gagnon of the Peterson Institute of International Economics.
On June 20, 2012, the Federal Reserve System’s Federal Open Market Committee extinguished the last shred of doubt as to whether it intends to achieve its mandated objectives. Despite a substantial markdown of an already inadequate forecast, the Fed did not take any actions that would make it possible to achieve either of its objectives over the foreseeable future.
Federal Reserve Chair Janet Yellen said inflation and wage growth remain too low even as the job market improves, and she signalled that a change in the Fed’s guidance on interest rates won’t lock it into a timetable for tightening.
“It is important to emphasize that a modification of the forward guidance should not be read as indicating that the committee will necessarily increase the target range in a couple of meetings,” Yellen said in testimony prepared for delivery before the Senate Banking Committee.
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Last week, the bulls pulled another save out of their hat – turning what initially looked like a losing week into a respectable advance to a new 12-week high.
The broad market rebound came on the heels of three individual policymaker statements, all aimed at restoring confidence and reviving sentiment before the selling could pick up momentum.