NEW YORK (Reuters) - A few U.S. Federal Reserve policymakers expected to taper the pace of asset purchases by midyear and end them later this year, while several others expected to slow the pace a bit later and halt the quantitative easing program by year end, according to minutes of the Fed's March meeting.
"A few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year," minutes from the March 19-20 meeting said on Wednesday.
The Fed said it changed the release time after it inadvertently sent the minutes to some people who normally receive them after the usual release time.
At the meeting, the Fed decided to continue buying $85 billion in bond per month to boost economic growth. The meeting was held before the poor March jobs report was unveiled.
BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, INVESTMENTS GROUP, WELLS FARGO MANAGEMENT LLC, MENOMONEE FALLS, WISCONSIN:
"The early release isn't that big of a deal, but the content was interesting. Yields are slightly higher, but stock futures haven't moved much. That's because the minutes were consistent with many people's expectations. Only one member was advocating tapering immediately while the majority seemed to favor waiting until the middle of the year.
"The one bad jobs report isn't enough to shift policy much, but it might just delay the tapering by one month. Instead of tapering at the June 18-19 meeting, they may announce tapering at the July 30-31 meeting. That, however, would be the earliest they'd likely start tapering. It's also important to note that they will modulate the tapering. They made it clear that they reserve the right to increase the pace of asset purchases. Tapering isn't an irreversible process. They can always back out of it."
ROBERT TIPP, CHIEF INVESTMENT STRATEGIST AT PRUDENTIAL FIXED INCOME, NEWARK, NEW JERSEY:
"There's a lot of disagreement on the Fed board about whether you're getting imbalances already - as evidence by the strong stock market as a result of the aggressive Fed policy - so there is concern and pressure to reduce the Fed's purchases. Even though the U.S. is clearly doing the best of the G4 in terms of economic performance and will, ultimately, end up going out of these extreme measures before other central banks, the fact remains we're barely at a trend level of growth. We're way above even the peak level of unemployment of the last recession. I don't see even a 6.5 percent unemployment rate necessarily as a trigger to begin tapering back on quantitative easing."
ALAN GAYLE, SENIOR INVESTMENT STRATEGIST AT RIDGEWORTH INVESTMENTS, IN ATLANTA, GA:
"We got the more intense discussion around how to end quantitative easing, as expected. But it seems that just as the path for the next policy move becomes clear, the economic data throws a wrench into it.
"The Fed is being clear with how it intends to lean over the coming quarters, and the economic data from one month to the next becomes crucial in terms of timing. We're still living from one data release to the next. It is becoming clear that the Fed is thinking hard about concluding quantitative easing."
IAN LYNGEN, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT:
"The minutes were released early today because they were mistakenly given to Congress early, so this has thrown off the timing by a few hours, but that has done little to exaggerate the price action. In fact, the Treasury market is off just three to four basis points on the news that a 'number' of participants looked for the pace of QE to 'be tapered down around midyear.'
"That information was not fully in the market and was understandably bearish for Treasuries, keeping in mind the 10-year and 3-year auction concessions are also relevant in this environment. We're impressed that stocks have not taken a bigger hit on the headlines."
MICHAEL JONES, CHIEF INVESTMENT OFFICER OF RIVERFRONT INVESTMENT GROUP, LLC, RICHMOND, VIRGINIA:
"These minutes would really be alarming people if we had not had a weak non-farm payroll. These minutes seem more strident, there are more voices cautioning about the exit strategy than in prior minutes, and the language is more precise. There are very specific risks that are enumerated in these minutes that I haven't seen enumerated in the past.
"What it suggests to me is that the Fed is full of a lot of really smart people, and that they recognize that getting out of this situation is not going to be easy, and they're trying to prepare plans for how they will exit from the extraordinary monetary accommodation."
TODD SCHOENBERGER, MANAGING PARTNER AT LANDCOLT CAPITAL IN NEW YORK:
"This is a game changer. It's going to move markets. The end of QE means we have to stand on our own, and there's no evidence that we can do that. If there is a bubble in equities, and I'm not sure there is, this could pop it. Earnings aren't there, the macro data has been weak, so we could be looking at a serious correction. Right now equities are the only place to get any kind of yield. Without the Fed, that may change."
ANDREW GRANTHAM, ECONOMIST, CIBC WORLD MARKETS ECONOMICS, TORONTO:
"After being inadvertently sent to some recipients early, the Fed minutes were released to the general public at 9 am this morning instead of the scheduled 2 pm release.
"In line with remarks from FOMC members prior to the disappointing March payroll figure, the minutes suggested that 'a number' saw QE tapering my mid-year and that 'several' saw the stimulus halting by year-end if labour market conditions improved as expected. But there were also more dovish members, despite the encouraging data seen towards the start of the year. Two saw purchases continuing at the current pace at least until the end of the year, while there was also talk that the pace of purchases could be accelerated if conditions deteriorated. Overall, though, with a string of disappointing data going under the bridge since the meeting on March 19-20, the minutes may be viewed as old news and not necessarily representative of current Fed thinking. That could also limit market reaction."
TANWEER AKRAM, SENIOR ECONOMIST, GLOBAL RATES, FIXED-INCOME, ING INVESTMENT MANAGEMENT, ATLANTA, GEORGIA:
"The jobs report on Friday definitely weakened the case for an exit from the Fed's purchase program this year. But the discussion about the program will remain relevant. The labor market appeared to weaken last month, but we would need to see corroborating evidence of that weakness in coming months. So far the current quarter appears to have gotten off to a soft start."
PETER CARDILLO, CHIEF MARKET ECONOMIST, ROCKWELL GLOBAL CAPITAL, NEW YORK:
"The early release caught everyone by surprise but it's not the first time the Fed released the minutes at an usual time, beforehand. It does not happen often but it has happened before."
"The key in the minutes is the ongoing asset purchases, that the support program will continue. It's good for the market. That's why we saw a bit of dip after the announcement of early release but bounced right back up."
MICHAEL WOOLFOLK, SENIOR FX STRATEGIST, BNY MELLON, NEW YORK
"Some members see a halt to QE by end, but we already knew that. The bigger story is that some people might be thinking about increasing QE rather than decreasing it. That goes with what St. Louis Fed President Bullard said recently, that we could have month-to-month changes in asset purchases based on the incoming data. Data has been weak lately, so that could mean we'll see an increase from the current $85 billion a month.
"There is always some concern in the market around early data releases. Some people were scratching their heads. But it does seem that this was accidental."
TOM DI GALOMA, MANAGING DIRECTOR, NAVIGATE ADVISORS LLC, STAMFORD, CONNECTICUT:
"All the discussion at the last FOMC meeting about the Fed tapering off its purchases was blown out of the water with Friday's horrible jobs figure."
MARKET REACTION: STOCKS: S&P 500 futures rose 2.9 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures added 22 points and Nasdaq 100 futures rose 8.75 points.
BONDS: Prices on U.S. 30-year Treasury bonds fell to session lows early Wednesday after the Federal Reserve released its minutes. The 30-year bond last traded down 24/32 in price for a yield of 2.975 percent, up 3.7 basis points from late on Tuesday.
FOREX: The dollar climbed to four-year peak of 99.72 yen, the euro fell to session low toward the dollar.
(Americas Economics and Markets Desk; +1-646 223-6300)