5 things to watch for Fed’s Sept Minutes

Greg Robb from MarketWatch highlighted 5 key areas to look out for during today’s FOMC minutes.

What next?

In its statement, the FOMC said it would “closely monitor” economic data and said that if the outlook for the labor market does not improve it will undertake additional asset purchases. Economists will be looking for hints of more purchases after the turn of the year, particularly once Operation Twist, with about $45 billion per-month of Treasury purchases, has run its course. Moreover, any discussion between Fed officials of the labor market conditions necessary to guide the pace and scale of further asset purchases will be helpful in gauging the Fed’s “reaction function” for the new bond-buying plan, said Ellen Zentner, a senior U.S. economist at Nomura Securities International in New York.

Where does inflation fit into the new low-rate pledge?

The Fed has committed to maintain easy policy even as the recovery progresses. This has raised fears that the Fed will be less sensitive to inflation. “The Fed might be letting its inflation guard down a bit as it aims both barrels at reducing unemployment,” said Sal Gautieri, senior economist at BMO Capital Markets.

Is there anything else up the Fed’s sleeve?

The minutes may hint at other policy weapons that will be used next, including a “funding for lending” program to spur credit growth. In August, the UK government and Bank of England launched the program to give cheap money to UK banks that can be passed on to borrowers. Another idea was a cut in the rate that the Fed pays banks for reserves parked at the central bank. Cutting the rate may push banks to make more lending.

What is ailing the economy?

Some economists think the Fed is more concerned about the U.S. outlook than they have let on. “We expect that we will learn more about the severity of the downside risks to growth that led to [the Fed’s QE3] decision,” said Thomas Simons, an economist at Jefferies Group Inc. in New York.

Future changes of communications?

Reinhart was hoping that the Fed will deliver a “more specific description” of the new policy. He wonders if the Fed’s subcommittee on communication is still at work.

Via – MarketWatch

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