FOMC Meeting Minutes Signal a Change in Fedspeak Is on Horizon By Jim Bach

The Federal Open Market Committee (FOMC) meeting minutes were expected to mirror the same sentiments and monetary policy guidelines the U.S. Federal Reserve has been touting for months.

And on that front, this minutes release did not disappoint.

The Fed has eight FOMC meetings a year, and three weeks after each one will release the minutes from those meetings to give a glimpse into Fed rationale. Since December 2013, the story has been the same.

As it stands, the U.S. central bank is purchasing long-term U.S. Treasury securities to the tune of $10 billion per month, and agency mortgage backed securities at a pace of $5 billion a month. This $15 billion-a-month asset-purchasing program is the end of the third round of quantitative easing (QE3) - large-scale Fed purchases aimed at pouring more easy money into the economy - that started with $85 billion-a-month purchases.

In Dec. 2013, then-Fed Chairman Ben Bernanke announced the start of the taper, wherein the Fed would cut the magnitude of its bond-buying spree by $10 billion a month. In each Fed meeting to follow, another $10 billion was cut and the policy was sustained as Bernanke handed his chairmanship onto the current Fed Chairwoman Janet Yellen.

Prior minutes revealed that, after much discussion, the Fed decided that after October's meeting, it would cut the remaining $15 billion and bring an end to QE3.

The question now on everyone's mind was: when will the Fed raise interest rates?

There is still speculation as to when the Fed will offload its $4.5 trillion balance sheet and begin to put upward pressure on the near-zero interest rates, but up until now, and even with the release of these minutes, the Fed has stayed silent.

The expectation is that rates will rise sometime in the second half of 2015, though the Fed's only mention of a timeline comes from the phrase "considerable time," an oft-used piece of Fedspeak that skirts the issue of an interest rate time frame all together, and leaves the markets uncertain of an explicit date.

The "considerable time" line has become a point of contention among the policy-setting FOMC members. It first drew scrutiny from Philadelphia Reserve Bank President Charles Plosser, who felt that the developments in the labor market called for a relaxing of the language.

And in the last meeting, Dallas Reserve Bank President Richard Fisher joined Plosser in his dissent, believing that the growing strength of the economy suggested an earlier reduction in accommodative monetary policy than the guidance has suggested.

This growing call from the policy hawks has illustrated a divide among the FOMC ranks between hawks and doves. However, this past meeting has kept the "considerable time" phrase intact.

And this is why this release is so important.

When that phrase is dropped from further Fed statements, it will signify that the days of low interest rates are soon to be behind us.

And with QE3 expected to end this month, you can be sure that the Fed can't hide behind "considerable time" for much longer before it's forced to be more outright in its intentions to raise rates.

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