JIM YOUNG
Markets are taking little comfort from the minutes from the Federal Reserve's last monetary policy meeting – the S&P 500 is still down, bond yields are little changed – even though the minutes point to a high possibility of more stimulus ahead and the possibility that the Fed's key interest rate could be kept exceptionally low well beyond 2014.
More stimulus and even ongoing low rates have been called into question recently, due to a streak of upbeat U.S. economic news. However, this paragraph in the minutes stands out as suggesting that the Fed isn't against another round of quantitative easing – or printing money to buy government bonds:
"A few members observed that, in their judgment, current and prospective economic conditions – including elevated unemployment and inflation at or below the Committee's objective – could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 per cent over the medium run."
Here are a few reactions from economists:
Peter Buchanan, CIBC World Markets: "The minutes of the January 24-25 meeting, which saw the Fed lower its forecasts and extend its level rate "commitment", provides further support for the view that the door is still ajar for further QE measures. A few members of the Committee expressed the view that more asset measures could be required "before long", if the economy downshifts once again or inflation proves uncomfortably low."
Paul-André Pinsonnault and Krishen Rangasamy, National Bank Financial: "In today's FOMC minutes we learned that some of them judged that the first increase in the federal funds rate would not be warranted until 2016. ... In other words, those participants are even more dovish than we might have thought by just looking at the chart provided last month."
Michael Gregory, BMO Nesbitt Burns: "It's still QE if necessary (if recession/deflation risks start mounting meaningfully again), but not necessarily QE. We still judge that net additional MBS purchases designed to lower mortgage rates (which are technically credit easing, not QE, particularly if they are sterilized via ramping up the Supplementary Financing Program) are not ruled out even if our GDP and inflation forecasts rule out QE3."