Following the last meeting of the Federal Open Market Committee on December 15, I suggested that the Committee's decision to expedite the release of its minutes was News That Didn't Make A Big Splash (But Maybe Should Have). We now have our first test with the release of the December minutes, and there were indeed some ripples. Here's a wrap-up from TheStreet.com's Rebecca Byrne.
While most investors had expected several more interest rate hikes this year, confirmation from the Federal Reserve came as an unwelcome surprise Tuesday...
"The FOMC minutes for the December meeting were considerably more hawkish than generally expected," said Stephen Stanley, an economist at RBS Greenwich Capital. "The committee has clearly become much more confident in the sustainability of the expansion."
The stock market slipped deeper into negative territory in the wake of the news and bonds sold off. The Dow Jones Industrial Average lost 96 points to 10,631 on the session, while the Nasdaq Composite slide 44 points to 2108. Treasury bond yields rose to 4.28%.
And this, from Bloomberg:
The Federal Reserve's Open Market Committee concluded interest rates were still too low ``to keep inflation stable'' and said rising prices may become a risk to growth, according to minutes of its Dec. 14 meeting.
"The current level of the real funds rate target remained below the level it most likely would need to reach to keep inflation stable and output at its potential,'' the minutes said...
Treasury securities and stocks declined. Some members were concerned about potential signs of ``excessive risk-taking'' amid low rates, citing credit spreads and increasing numbers of mergers and initial public offerings the minutes said. A weaker dollar, higher energy prices, diminishing competition in some industries and a possible slowdown in worker output per hour were among the forces that may drive prices higher, the minutes said...
"With the economic expansion more firmly entrenched, cost and price pressures were likely to become a clearer intermediate- term risk to sustained good economic performance absent further reduction of accommodation,'' according to the document released in Washington.
I guess communication really does matter.