FOMC Meeting Minutes Show Caution – Employment Key for Tapering

The FOMC meeting minutes were somewhat overshadowed by the big roller coaster that Bernanke caused in his testimony earlier in the day.

Nevertheless, the minutes show that a stronger recovery is needed for exiting QE. It’s important to note that these are minutes from the May 1st meeting (where the Fed pointed to the fiscal drag), so the news is 3 weeks old, contrary to the fresh testimony from Bernanke.

• On one hand, some participants talked about tapering QE in the following meeting, in June. The existence of hawks on the FOMC is not news though.
• On the other hand, a couple of participants saw a need for more stimulus, especially if the level of inflation continued falling. Indeed, the inflation data published after the meeting, inflation continued falling.

EUR/USD is a bit lower after the release of the minutes: sliding towards 1.2840, where it bounced from earlier.

Bernanke rocked the markets earlier: at first, the release of the statement showed worries about unemployment and worries about exiting the monetary stimulus too early. A premature exit would damage the recovery. The dollar dropped on the lack of “tapering” hints.

However, when Bernanke was asked about the exit strategy, he mentioned that bond buys could be reduced “in the next few meetings“. This was enough to send the dollar surging: EUR/USD crashed 150 pips, USD/JPY reached new multi-year highs, AUD/USD fell under 0.97, USD/CAD rose to a near one year high and GBP/USD is getting closer to 1.50.