Latest Fed Minutes Inspire Confusion on Wall Street

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The latest Fed minutes are out, and they inspired a very familiar reaction on Wall Street: confusion.
When the Fed minutes were released at 2 p.m. ET, stocks initially plummeted. The S&P 500 fell nine points in eight minutes. Then, suddenly, they went the other way. From 2:07 to 2:47, the index shot up 17 points and appeared well on its way to a second straight positive day.
Then investors changed their minds again and stocks finished the day down more than half a percent.
Just a typical Fed minutes announcement day, really. Investors haven’t seemed to know what to do with the Federal Open Market Committee’s cryptic messages about the U.S. economy. Here were some of today’s vague messages:

  • The committee is “split” over when to start tapering off its $85 billion-a-month buybacks.
  • Several committee members are willing to lower the unemployment threshold for when tapering could begin. Ben Bernanke had previously set the rate at 6.5%. The current unemployment rate is 7.4%.
  • Several committee members expect U.S. economic growth to pick up in the second half of the year … which obviously means that several of them don’t.
  • Most committee members believe inflation will remain below 2% for a long time.
  • Several committee members remain confident in the housing recovery despite increasing interest rates.

The word “several” probably screwed investors up more than anything. The FOMC is clearly torn about the economy at this point. So it’s no surprise that investors are equally torn.
As long as the Fed continues to be so vague about how long QE3 will continue, uncertainty may continue to plague the market.

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