Must-know: July 2014 FOMC minutes
Overview: Analyzing the July 2014 FOMC minutes (Part 1 of 6)
July, 2014 FOMC minutes
When the Fed meets for its Federal Open Market Committee (or FOMC) meeting, it usually puts out a press release that hits the decision highlights. It also gives a brief economic overview. Sometimes the release accompanies a press conference. Analysts will usually compare the current statement with the previous one. They will note any changes in language. The FOMC meeting minutes are much more in-depth. They’re usually ten to 20 pages long. The minutes include graphs and a discussion about the argument. Both sides of the argument are provided.
Instead of simply giving the argument to protesters, the minutes explain the current discussions. Commercial real estate investment trusts (or REITs) like Simon Property Group (SPG), Boston Properties (BXP), Kilroy (KRC), Vornado (VNO), and S.L. Green (SLG) are sensitive to the interest rate. So, they’ll analyze the minutes to understand the economy and the Fed’s intentions.
Bonds react to the minutes
International tensions have caused bonds (or TLT) to be strong for the past few weeks. The day began with the ten-year bond yielding 2.4%. Bonds sold off on the minutes and then closed at 2.44%. The minutes showed that policy could tighten sooner at the margin.
The new buzzword for Fed policy—”normalization”
With “tapering” now a common term in the Fed’s language, we need a new word to address when we eventually step away from the zero interest rate policy (or ZIRP). That word is “normalization.” It has become the substitute for “raising the Fed funds rate.” If you read the Fed minutes—and I’ll talk about this more in depth later in this series—we’re truly in uncharted waters. The Fed is considering increasing the interest rates with a massive balance sheet. Remember that increasing interest rates hurt the value of fixed income assets. The Fed isn’t immune to this pain.
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