Caught off guard: Why the Fed meeting minutes surprised markets

On the latest edition of Market Week in Review, Director of Investment Strategies Shailesh Kshatriya and Head of Portfolio & Business Consulting Sophie Antal Gilbert discussed the meeting minutes from the U.S. Federal Reserve (the Fed), the latest inflation data and the recent volatility in cryptocurrency markets.

Is the Fed thinking of tapering its quantitative-easing program?

The release of minutes from the Fed’s April 27-28 policy meeting proved to be more interesting than expected, Kshatriya said, leading to some turbulence in markets. “The meeting minutes showed that Fed officials are open to the idea of making adjustments to the central bank’s asset-purchasing program if the country continues to make rapid and substantial progress toward the Fed’s dual mandate of stable prices and full employment,” he explained.

Markets were caught off guard by this revelation, Kshatriya said, because it suggested that the Fed might be thinking about tapering its monthly bond purchases of $120 billion earlier than anticipated. An earlier wind-down in quantitative easing, in turn, could lead to an earlier tightening in monetary policy than what markets have been pricing in, he explained.

Kshatriya stressed, however, that the fact that Fed officials are engaging in these types of deliberations is actually a good thing. “Ultimately, these conversations are a reflection of the fact that the U.S. economic recovery is truly strengthening,” he remarked.