Fed meeting minutes forward look: expected to reiterate the upcoming reduction in debt purchases

The Fed’s conditions for reducing the size of its debt purchases are “basically met,” and Fed Powell’s words have been echoing in the minds of traders. Perhaps the weak non-agricultural employment data may discourage the Fed from cutting its $120 billion monthly bond purchase plan. So will "almost" become "not yet"? The minutes of the Fed meeting will provide further answers.


The US economy only added 194,000 jobs in September, which is less than half of the expected 500,000 jobs. This is the second disappointing data in a row and may indicate a significant slowdown in recruitment. This may make people wonder whether it is necessary to tighten policies. One of the tasks of the Federal Reserve is to ensure full employment.

Another reason to think twice comes from the wage data in the non-agricultural employment report. As expected, the average hourly wage increased by 4.6% year-on-year. If more leisure and hospitality workers return to work, this number will be lower because their wages are relatively low. As these types of jobs increase, wage growth will be even higher.

Wage data shows that because consumers have less money in their pockets, inflation is lower. It should be noted that this estimate was completed before the September consumer price index statistics were released. However, the core CPI in August was lower than expected and fell to 4%.

A weak labor market and weak price pressures mean that the Fed needs more support. The Fed may postpone its official announcement of reducing the size of its debt purchases from November to December, resulting in more US dollars being printed—and therefore currency weakness. Is that right?

The decrease in leisure and hospitality employees returning to work is the result of the new crown pneumonia epidemic. The delta variant continues to cause havoc in the United States, causing customers to stay away from restaurants, leading to reduced recruitment. Recent coronavirus statistics show a decline in cases, which means that these jobs may be restored later.

In addition, returning to Powell's words-"almost satisfied"-means that the threshold for not reducing debt purchases is very high. In addition, the Fed has vowed to warn the market "long in advance" to prevent the "shrinking panic" of 2013. So far, the Standard & Poor's 500 Index has fallen 5% from its all-time high, which is not even the last formal correction-10%. So far, the Fed’s early warning plan is pretty good.

Therefore, the threshold for changing the Fed's thinking is high. The non-agricultural employment data is not very good, but it is enough to reduce quantitative easing - especially when the non-agricultural employment data in August has been revised upwards, which added about 131,000 jobs.

In general, the minutes of the Federal Open Market Committee (FOMC) meeting should reiterate the Fed's position that it is about to reduce the size of bond purchases.

If, as the above analysis implies, the Fed reminds the market that it is eager to reduce bond purchases, then there is still room for the U.S. dollar to rise and the stock market to fall. If the CPI data weakens, this reaction will be even more pronounced. The slowdown of money printing means that the currency is stronger, and the decrease in currency issuance means that the amount of dollars flowing into the stock market decreases.

If the minutes of the Federal Open Market Committee's meeting are not sure about reducing quantitative easing (given the noisy hawks within the Fed, this is unlikely), the dollar will fall and the stock market will benefit.