The three month push by the Fed to terminate quantitative easing came to a crashing halt on September 18th when the central bank surprised just about the entire financial world by maintaining its $85 billion a month quantitative easing program.
With the Fed Funds rate immured at 0.25 percent for almost five years quantitative easing is the Fed's monetary policy. When on May 22nd Ben Bernanke began to hint that quantitative easing might be on the way out, financial markets assumed that this was the transparency and forward guidance that the Fed chairman had championed. It seemed that the central bank had made up its collective mind to end QE and the qualifications for supporting data were just the necessary analytical smokescreen.
From long experience with Fed interest rate policy, the market assumption was simple, if the decision had not been made, why bring up the topic? The Fed does not speak off the cuff. Mr. Bernanke started the discussion and so the central bank must have concluded that the real liabilities of QE now outweighed its advantages, or so the financial world reasoned.
More than any recent Fed decision, last month's surprise was not just complete but a reversal of the logic presented by the Fed in numerous prior public statements.
How the bank arrived at that reversal and the narrowness of the vote will be of surpassing interest to the markets. These are easily the most interesting Fed minutes in many a year.
Chief Market Strategist
WorldWideMarkets Online Trading