By mid-afternoon in New York, the Dow was trading down just 0.13% or 20 points at 14,983, after having been down more than 100 points lower at one point.
The minutes revealed some disagreement between Fed members on whether the economy is robust enough to withstand a reduction in the pace of stimulus, saying that several committee members 'were somewhat less confident about a near-term pickup in economic growth than they had been in June; factors cited in this regard included recent increases in mortgage rates, higher oil prices, slow growth in key US export markets, and the possibility that fiscal restraint might not lessen.’
Perhaps crucially, it is also clear that members of the Fed are not convinced about the strength of the labour market. A key passage divulged that while the June payrolls showed improvement , ‘the unemployment rate remained elevated, and the continuing low readings on the participation rate and the employment-to-population ratio, together with a high incidence of workers being employed part time for economic reasons, were generally seen as indicating that overall labour market conditions remained weak.’
Inflation remains an area of concern. While some members of the FOMC (and one of these I assume is Esther George) believe the PCE rate of inflation will return to 2% reasonably quickly, others (presumably including James Bullard) see ‘the low inflation readings as largely reflecting persistently deficient aggregate demand, implying that inflation could remain below 2% for a protracted period and further supporting the case for highly accommodative monetary policy.’
All in all, while some members of the Fed clearly are still comfortable with the idea of tapering as soon as September, it seems to me that there is a significant contingent who are uncomfortable with doing so and I think tapering in September is looking slightly less likely in the wake of this new information.
We have more data tomorrow about the labour market and the manufacturing sector with jobless claims and the ‘flash’ reading of the PMI manufacturing index for August.