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FOMC Minutes Reveal Infighting

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In his Daily Market Notes report to investors, while commenting on the FOMC minutes, Louis Navellier wrote:

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Q2 2021 hedge fund letters, conferences and more

The 10-year Treasury bond declined during the Afghanistan crisis, so all eyes are now on the Fed to see how it impacts monetary policy. If the FOMC clarifies that it may curtail its quantitative easing, it may not happen until 2022.  Furthermore, if and when the Fed curtails its quantitative easing, I bet that the FOMC will merely “downshift” to approximately $80 billion per month in quantitative easing.

FOMC Minutes Show Infighting

Now that I said that the Fed may not curtail its quantitative easing until 2022, I should add that the Fed released its last FOMC minutes on Wednesday.

The Fed minutes released on Wednesday revealed a disagreement within the FOMC when the Fed will begin tapering and curtail its quantitative easing.  Specifically, several FOMC members argued that aggressive monetary policy was still needed to fix the damage (i.e., 6 million missing jobs) done to the labor market by the pandemic and felt ongoing quantitative easing via the $120 billion per month in bind purchase were helping to stimulate job growth.  However, a few FOMC members agrued that Fed policy had little left to contribute to a process driven by private business and household decisions.  Finally, several other FOMC members said the condition of labor markets prior to the pandemic "may not be the right benchmark" given the pandemic’s permanent change to the U.S. economy.

Amid this infighting, the FOMC minutes stated that “Most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year.”  Translated from Fedspeak, this means that the Fed may announce tapering at its September or December FOMC meetings, but then the tapering will commence a bit later.  So again, I am betting that any tapering will commence in 2022 and the Fed will downshift from $120 billion to $80 billion per month in quantitative easing.

Outlook Uncertain at FOMC

At his virtual “town hall” on Tuesday, Fed Chairman Jerome Powell offered no views on monetary policy, but said “It’s not yet clear whether the Delta (coronavirus) strain will have important effects on the economy; we’ll have to see about that.”  In other words, Fed Chairman Powell has an uncertain economic outlook, so I expect that Fed policy will remain unchanged and that any tapering decision will be kicked down the road.

The most interesting comments from a Fed official came from Minneapolis Fed President, Neil Kashkari, who on Tuesday was speaking at the Pacific Northwest Economic Regional Annual Summit in Big Sky who said “Cryptocurrency is 95% fraud, hype, noise and confusion.”  However, the Treasury Department declared cryptocurrencies as “an asset” and in your 2020 tax return, you are required to declare your cryptocurrency transactions.  Clearly, the regulators cannot agree on cryptocurrencies, so confusion reigns!

Interestingly, the WSJ reported that a MasterCard tracker of consumer spending, excluding vehicle sales & gas stations, rose approximately 11% in July compared to a year ago.  MasterCard also reported that in the past 12 months, spending on apparel & jewelry surged 80%, while restaurant revenue rose 61%.  Based on these consumer spending patterns, it appears that consumers are getting out and about, so the Covid-19 Delta variant is not yet curtailing consumer spending.

Market Fact

Of the largest U.S. companies by market cap, the largest non-tech company is Berkshire Hathaway Inc. (NYSE:BRK.B), at ~$645 billion and ranks 7th on the list of the 15 largest companies by market capitalization.  The bottom five are NYSE:JNJ, NYSE:V, NYSE:UNH, NYSE:HD and NYSE:PG.  The top five are NASDAQ:AAPL, NASDAQ:MSFT, NASDAQ:AMZN, NASDAQ:FB and NASDAQ:GOOGL.  Source: S&P Dow Jones Indices.