Fed's Instant Message Is More Wait and See

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I keep reading that the Federal Reserve is discussing how to taper its asset purchases without disrupting financial markets. Good luck with that. It's never too soon to start planning, especially when the new target date for the onset of tapering is "in coming months," according to the minutes from the Oct. 29-30 meeting, released today. Recall that in June, the target was "later this year."

You have to read this for yourself:

Policy makers "generally expected that the data would prove consistent with the Committee's outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months," according to the minutes.

Of course they expect the data to be consistent with their outlook. Otherwise they'd change their outlook. Let's move on.

"However, participants also considered scenarios under which it might, at some stage, be appropriate to begin to wind down the program before an unambiguous further improvement in the outlook was apparent."

Got it? Either/or. Take your pick. But by all means, let's be crystal clear in our communication. Stocks and bonds got the message. The possibility of tapering "in coming months" was enough to send prices lower. No need to read the Fed's laborious discussion of how to communicate its intentions to the market.

My favorite part of the minutes is the juxtaposition of how the Fed envisions forward guidance in theory and what it does in practice.

"Participants broadly endorsed making the Committee's communications as simple, clear, and consistent as possible, and discussed ways of doing so," according to the minutes.

Let me count the ways: "With regard to the asset purchase program, one suggestion was to repeat a set of principles in public communications; for example, participants could emphasize that the program was data dependent, that any reduction in the pace of purchases would depend on both the cumulative progress in labor markets since the start of the program as well as the outlook for future gains, and that a continuing assessment of the efficacy and costs of asset purchases might lead the Committee to decide at some point to change the mix of its policy tools while maintaining a high degree of accommodation."

If you got through that without taking a breath, good for you. A Google search for "Fed and data dependent" produced 8.2 million results -- in 0.35 seconds, I might add. Please, please someone tell these folks that we hear you. We just have a different take on what it all means.

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