Federal Reserve Minutes Fail to Inspire Investors

Blue-chip stocks languished for most of the day in anticipation of the minutes from the Federal Reserve's most recent monetary policy meeting. When the minutes were released, stocks enjoyed a small, brief boost, but they have since lost their momentum and dipped back into the red. With about an hour left in trading, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is down by 24 points, or 0.16%.

The big question on virtually every interested investor's mind concerns when the central bank will begin to taper its massive purchases of bonds. Since last September, it has bought $85 billion of Treasury bonds and agency mortgage-backed securities each month. The purpose is to drive down long-term interest rates and thereby fuel economic growth and thus a recovery in the labor market.

There's little doubt that the Fed has at least gotten things going in the right direction. The rate on a 30-year fixed-rate mortgage bottomed out in the latter half of 2012, falling below 3.4% for the first time in history. This spurred a massive refinancing wave at banks like Wells Fargo (NYSE: WFC  ) , which underwrote a staggering $125 billion in mortgages in the final quarter of last year, and it allowed tens of thousands of homeowners to lessen their monthly payments and redirect those expenditures elsewhere.

In addition, there are a number of green shoots beginning to sprout in the labor market. Last month, for example, 195,000 new jobs were created, making it the third-best June jobs report in the last 15 years, according to my colleague Morgan Housel.

But the question now is whether or not the Fed will continue down this path. At the end of May, Fed chairman Ben Bernanke intimated that the central bank could soon begin to taper its support for the economy so long as the economy continues to recover. This sent stocks spiraling downward, while interest rates shot higher. Just last Friday, for instance, on the heels of the better-than-expected jobs report, mortgage rates jumped by the largest single-day margin in history.

So what's the answer? Quite frankly, the minutes released today shed little additional light on this. On the central question of whether or not the central bank should reduce its asset purchases, the minutes note that "several members judged that a reduction in asset purchases would likely soon be warranted." But at the same time, they go on to say that "many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pact of asset purchases."

In other words, just as we've known all along, the Fed will begin scaling back QE3 as conditions -- namely the employment picture -- improve.

With respect to individual stocks, the best-performing component on the Dow today is Hewlett-Packard (NYSE: HPQ  ) , up 2% at the time of writing. While the ailing company has struggled over the past few years in the face of waning demand for PCs, a Citigroup analyst noted today that it's nevertheless gaining market share relative to its competitors. As a result, the megabank increased its price target on HP's stock to $32 a share from $16 a share.

It's worth pointing out in this regard, as fellow Fool Dan Dzombak observed earlier, that Citigroup "is late to the HP party; the stock has risen 82% year to date and 36% over the past year. That said, the survey is another sign that HP's business is beginning to turn around."

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