Big monetary policy news: Fresh minutes from the Federal Reserve show that there were “several” members who favoured an end to QE sometime in 2013.
Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.
The market has ticked lower on the news, and gold is diving.
The timing of this hawkish turn is quite ironic.
It was at this meeting that the Fed adopted the “Evans Rule,” a policy framework which indicates that the Fed will not tighten until the unemployment rate gets to around 6.5%, or inflation expectations get to around 2.5%. This guidance was seen as a big achievement of dovish monetary policy wonks, who have been pushing a long time for the Fed to have clear guidance thresholds that heavily weight unemployment.
But even before today’s Fed minutes, there were growing murmurs about the Fed moving marginally toward tightening. As we wrote on December 20, you could argue that the Fed marginally tightened, because whereas the previous guidance indicated no end to easing until 2015, at current trajectories, we could hit the “Evans Rule” thresholds by the end of 2014.
So now we have more evidence of a tilt. Just when the Fed gets to a policy that the doves have been pushing for a long time, the Fed gives off its first real signals of an eventual return to normal policy.