F_O_M_C Mostly at Consensus, except...

The $10bn taper was expected, as I've maintained, the F_E_D wants out. The last "minutes" from the previous meeting were very interesting as I have (as well as others) pointed out that the F_E_D is a quasi governmental/corporation. There are ccertainly more government elements about the F_E_D than most corporations, but the name alone, "Federal Reserve" is very misleading as to just how much government vs. Corporation, it's kind of like a bank names "First Federal". In many ways, the F_E_D is no different than say Bank of America in being a FOR PROFIT corporation with shareholders, with the additonal edge of having the sole monopoly on printing US legel tender and controlling monetary policy, but at the EOD, they are still a corp. and are looking to make a profit.

The last minutes was one of the few times in which the F_E_D has addressed this issue in the open at a policy meeting. You may recall there was an inter-meeting questionnaire given to voting members and some of their concerns were with the F_E_D, "Taking losses".

In any case, the taper is not surprising to anyone.

What the market (Smart money and the bond market) IS more concerned with now than the taper is the question, "When will the F_E_D start hiking interest rates?".

The initial guidance on this was at 6.5% unemployment, the F_E_D saw that as a reasonable area to start hiking rates, the bond market did not respond well to the initial taper talk last summer because in the initial guidance, the F_E_D expected to start hiking interest rates and forgoing the ZIRP policy at 6.5% unemployment and "about 6 months after QE3 ends" so the talk of starting to taper QE last summer with what was a very hawkish policy meeting with more than half of voting members saying they foresaw QE3 being fully wrapped up by the end of 2013 and others saying they thought that meeting was the time to start spooked the bond market as there was no talk of new interest rate ploiicy guidance and 10-year bench mark Yields popped over 3%.

Remember us asking, "What is the F_E_D so afraid of?" when the next few meetings almost totally ignored tapering altogether?, It was the bond market's reaction.

So what is notable about today's meeting is the additional guidance that they reiterated that they will not hike rates until the unemployment rate is "well past 6.5%" which is important because the last non-farm payrolls saw the Unemployment rate suddenly drop from 7% to 6.6%, a mere .1% from the F_E_D's threshold" and this largely because of the sinking labor participation rate which has a lot to do with the new Federal budget having cut out extended unemployment benefits, so over 3 million Americans were expected to drop off the extended benefits roll this year. We had something like 300k drop off at the last Non-Farm Payrolls and that sent the U.E. rate down nearly half a percent so what happens with 3 million dropping off? An unemployment rate of 5%? That scares the bond market because interest rates (according to past F_E_D guidance) would see us well in to a tightening cycle.

That was about the only thing of note in today's policy decision, NOTE THAT NO SPECIFIC GUIDANCE WAS GIVEN, ONLY, "WELL PAST 6.5%".