The Fed minutes came early today. The central bank accidentally sent minutes of its March 19-20 policy meeting to an e-mail distribution list of congressional staffers and trade lobbyists on Tuesday. When the mistake was discovered, the Federal Reserve released the results at 9 a.m. instead of waiting for the usual 2 p.m. release.
Embarrassing mistakes aside, the minutes paint a picture of a Federal Open Market Committee having trouble coming to a clear consensus on the most pressing policy question before them: When and how to taper, and then end, their policy of buying $85 billion per month in Treasury bonds. The officials seem to be all over the place:
■ “A few” already believed the costs exceeded the benefits of the policy and wanted to end the program soon. (This is the hawkish wing of the committee, and while the minutes do not identify members, this view likely includes Esther George of the Kansas City Fed, Charles Plosser of the Philadelphia Fed and Jeffrey Lacker of the Richmond Fed.)
■ “A few others saw the risks increasing fairly quickly . . . and judged that the pace of purchases would likely need to be reduced before long.” (This could include some of those who have raised alarm bells about financial bubbles but still voted for the easing programs, such as governor Jeremy Stein.)
■ The next group appears to include the most members: “Many participants” argued that the improved outlook for the job market could justify slowing the pace of bond purchases “at some point over the next several meetings.” (This seems, from recent speeches, to be a relatively broad group of the committee, including centrists such as Atlanta Fed president Dennis Lockhart and doves such as John Williams of the San Francisco Fed and Fed vice chairman Janet Yellen.)
■ “ A few” argued that economic conditions would justify maintaining the $85 billion a month in purchases “at least until late in the year.” (This group likely includes the most dovish voices, such as Chicago Fed president Charles Evans and Eric Rosengren of the Boston Fed.)
■ “A couple” of those participants noted that if economic progress were not maintained, the pace of purchases might need to be increased. (Again, we're looking at you, Evans and Rosengren.)
Got that? A few Fed officials think QE should be stopped immediately; a few think that it should be shrunk fairly soon; many think that it should be slowed if we see a rebounding job market; a few think it should continue at its current size until the end of the year; and a couple think it may need to be increased. The minutes also make clear that Fed officials are not all on the same page in determining the economic climate that would trigger that tapering ("A range of views was expressed regarding the economic and labor market conditions that would call for an adjustment in the pace of purchases," the minutes say).
So, it's not just a matter of disagreement over how the economy will do, it's also a disagreement over how the Fed should respond to a given set of economic circumstances.
Since that meeting, Fed Chairman Ben Bernanke gave a news conference and numerous FOMC members have given speeches that, in the aggregate, suggested that the Fed will begin tapering off its bond buying starting this summer. But Friday's weak March jobs report has thrown those forecasts into doubt.
As the minutes say, “many participants emphasized that any decision to reduce the pace of purchases should reflect both an improvement in their overall outlook for labor market conditions, as implied by a wide range of available indicators, and their confidence in the sustainability of that improvement.”
In other words, when we see reports like the one Friday, showing a grim slowdown in hiring -- the U.S. economy added only 88,000 jobs in March -- and indicating that the unemployment rate fell mainly because people left the job market, it would tend to push the great QE taper to a more distant horizon.