U.S. stocks fell with Treasuries and gold as minutes from the Federal Reserve’s last meeting indicated policy makers see risks to financial stability from continued monthly bond purchases.
The Standard & Poor’s 500 Index (CME:SPH14) dropped 0.2% to 1,834.28 as of 3:38 p.m. in New York. The yield on 10-year Treasury notes (CBOT:ZNH14) rose five basis points to 2.99%. The dollar (NYBOT:DXH14) appreciated versus 14 of 16 major peers and gold retreated 0.7%. Crude (NYMEX:CLG14) fell to the lowest level in six weeks after a government report showed bigger-than-expected gains in gasoline and distillate supplies. Spain’s 10-year yield dropped to the lowest since 2009 after a euro-area report showed retail sales increased more than estimated in November.
Fed policy makers saw diminishing economic benefits from the central bank’s bond buying program and expressed concern about the potential for “excessive risk-taking in the financial sector,” according to minutes of their last meeting, when they took the first step to cut the pace of purchases. An earlier report showed U.S. companies hired more workers than forecast, boosting the case for tapering stimulus.
“The market wants quick and easy answers,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a telephone interview. “I don’t think the Fed minutes made exactly clear which way the Fed is going, because the Fed does not yet know which way to go. The Fed will respond to the economy.”
The Fed said after its last meeting that it would reduce monthly bond purchases by $10 billion to $75 billion beginning in January. Recent progress on jobs, manufacturing and housing has affirmed the policy makers’ view that the economy is improving enough to take the first step toward exiting stimulus that has swelled the Fed balance sheet to more than $4 trillion.
Policy makers will gather Jan. 28-29 to consider the next step in their strategy. The minutes released today didn’t describe a set schedule for the pace of asset-purchase reductions, although “a few” officials mentioned the need for a “more deterministic path.”
The Fed will likely taper buying in $10 billion increments over the next seven meetings before ending them in December, according to a Dec. 19 Bloomberg News survey of economists.
“The Fed is going to continue to push the message of moderate tapering, but I think they will provide a very bullish outlook for the economy,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “We are looking for the dollar to continue to gain broad-based support.”