FOMC Minutes: More Taper Clues?

What are the odds of another Fed taper taking place soon? You might be able to find some clues in the latest FOMC meeting minutes so here’s a quick rundown of what happened:

“Cautious taper” pretty much sums up the vision of most Fed officials when it comes to monetary policy adjustments in the near term. While FOMC members acknowledged the recent improvements in the labor market and the need to wind down stimulus, some cautioned that tapering might be misinterpreted as tightening. With that, they agreed to proceed carefully in “measured steps” in order to manage market expectations.

A few policymakers also expressed their concerns regarding asset price bubbles, which might result from the increase in number of leveraged debt and the decline in quality of such loans. According to them, financial stability must not be compromised in the pursuit of stronger economic growth. That’s definitely something that FOMC members would keep in mind moving forward!

As for interest rates, policymakers were still mostly in agreement when it comes to keeping rates unchanged until the U.S. economy meets its inflation and unemployment targets. However, policymakers debated on whether or not to adjust the unemployment threshold lower to take the recent improvements in hiring into account. No actual changes were announced though, as some worried about the risks of confusing the markets.

Concerns about disinflation also popped up, as policymakers predicted that price pressures will remain subdued for the next couple of years. They pointed out that global inflation has been slowing down, suggesting that the economic recovery might not be as strong in real terms.

Despite weaker inflation prospects, FOMC members still see stronger GDP growth for the U.S. accompanied by further gains in the U.S. dollar. Do you think this is enough to usher in the “Year of the Dollar” for 2014?