Robust is the new moderate: The January 2014 FOMC minutes and REITs

Robust is the new moderate: The January 2014 FOMC minutes and REITs (Part 1 of 8)

Why the latest FOMC minutes show a Fed committed to tapering

The Federal Reserve usually releases a more detailed account of its Federal Open Market Committee (FOMC) meetings a month or two after the initial meeting

When the Fed meets for its FOMC meeting, it usually puts out a press release that hits the highlights of the decision and gives a brief economic synopsis. Sometimes the release accompanies a press conference. Analysts will usually compare the current statement with the previous one and try to divine the Fed’s thinking by noting any changes in language. The FOMC minutes of the meeting are much more in-depth and are usually ten to twenty pages long, with graphs and a discussion of both sides of the argument. Instead of simply giving the argument for dissenters, it gives the analyst a feeling for the current discussions. Commercial REITs like Simon Property Group (SPG), Boston Properties (BXP), Kilroy (KRC), Vornado (VNO), and S.L. Green (SLG) are highly interest rate–sensitive, and therefore will parse the minutes to get a read on the economy and the Fed’s intentions.

10 year bond yield - LTEnlarge Graph

Bond reaction to the minutes

Bonds (TLT) started the day strong, given the weak housing starts number and the riots in Ukraine. The day began with the ten-year bond yielding 2.68%, and then yields pushed up to 2.73% on the minutes. Given the fact that Janet Yellen just spent six hours in front of Congress discussing monetary policy, there should have been few surprises in the report.

The Committee wanted to communicate commitment to tapering

The FOMC stated:

  • “Several participants argued that, in the absence of an appreciable change in economic outlook, there should be a clear presumption [emphasis mine] in favor of continuing to reduce the pace of purchases by a total of $10 billion at each FOMC meeting. That said, a number of participants noted that if the economy deviated substantially from its expected path, the Committee should be prepared to respond with an appropriate adjustment to the trajectory of its purchases.”

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