It is interesting to see that officials are open to reducing bond purchasing at the June meeting if there is evidence of strong and sustainable growth. A problem is that officials disagree on what evidence would really indicate that there is sufficient underlying growth that would remain if the bond buying was tapered. The minutes also showed that labor markets have improved since last September. That jobs market is what many Fed members want to see improving.

What you have is evidence that Fed officials are starting to think that the bond buying aspect of quantitative easing may not be helping that much. That being said, there is really only one dissenting voice among the voting members of the FOMC.

The markets have continued looking for a reason to sell off and that is what they have done. The S&P 500 is now down 8 ponts at 1,660 after having been over 1,680 this morning. The DJIA is now down about 30 points at 15,356 after having been challenged 15,550 earlier.

FULL FOMC MINUTES

The one dissenting vote is Esther George and the minutes said,

“Ms. George dissented because she continued to view monetary policy as overly accommodative and therefore as posing risks to the long-term sustainable growth of the economy. She expressed concern that the stance of policy might be fostering imbalances and excessive risk-taking in some financial markets and institutions, and she cited the potential for the Committee’s ongoing asset purchases to complicate the future conduct of policy, raise uncertainty, and affect future inflation expectations. Accordingly, Ms. George preferred to signal a near-term tapering of asset purchases, which would begin to move policy toward a more appropriate stance.”

Now we have seen that the 10-year U.S. Treasury Note has suddenly gone back up over 2.00%. In fact, the last move was up about basis points for a 2.01% yield. The 30-year Treasury Bond is also up about 7 basis points to 3.20%. Over the last month we have now seen 10-year rates rise 22 basis points and 30-year rates rise by 25 basis points.

If you go back before this move to see higher rates earlier in 2013, the last time that the 10-year Treasury Note was up over 2.00% was March 15 and that cycle high yield was 2.09%.

Now go back to the 30-year Long Bond yield at 3.20%. The move here is less dramatic but we are now challenging yield highs going back to March as well when it looked as though the Treasury Long Bond was going to break above 3.30%.

We also have seen two Fed presidents try to tone down some of the fears that bond buying would either end rapidly or that the tapering effect would come rapidly. Right now it seems as though the investing community is trying to brace for that day of less bond buying and perhaps even higher interest rates ahead of time.

As a reminder for Long Bond owners: a rapid rise of 100 basis points on the 30-year Treasury Bond will cause a loss of more than 15% in face value. In short, a 100 basis point rise wipes out roughly five years worth of annual coupon payments.

Bernanke’s main talking points are that fiscal policy remains a drag on the economy this year, growth has continued at a moderate pace, government spending declines acted as a drag, long-term inflation expectations remain stable, aggressive monetary policy has reduced headwinds, the pace of assets purchases could change based on conditions and credit quality of some loans has eased.

The one thing that the stock and bond bears will hang a hat on is that Bernanke did admit that a long period of low interest rates does come with risks. That being said, our own interpretation is that Bernanke is telling the bears to relax, as you will see here.

Here is the takeaway quote that should ease concerns that the Federal Reserve will drastically cut its easing and bond buying.

A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.

Just yesterday came word from Fed presidents Bullard and Dudley that the quantitative easing measures and bond-buying efforts do not need to be tapered off yet, and Dudley even went on to further back that up this morning, telling Bloomberg TV that any real decision to begin tapering off of the bond buying is likely another three or four months out.

Shortly before the Bernanke speech, we had the S&P 500 up 4.70 at 1673.86, and the DJIA was up 40 points at 15,427. Gold was up $7 at $1,384.60 per ounce, and the 10-year Treasury yield was 1.918%. Now the S&P 500 is up more than 10 points, the DJIA is up more than 80 points and gold went up to $1,400.

See the Bernanke’s full testimony here.

Millions of Italians cannot afford to heat their homes properly or eat meat as their country is racked by recession and soaring unemployment, said a report which found the number of people considered seriously deprived had doubled in the past two years.

The findings from national statistics institute ISTAT underline the scale of the challenge faced by the new coalition government of Enrico Letta, which has vowed to stimulate growth and tackle a youth jobless rate of almost 40 percent.

A recession that has lasted almost two years has taken a heavy toll on ordinary Italians who are increasingly digging into their savings, ISTAT said in its annual report.

Italy has the highest level in Europe of young people who are neither in education nor employment, at 23.9 percent, the study showed. In Italy’s impoverished south, one in three people aged 15-29 fell into this group.

The number of people living in families considered to be seriously deprived has doubled in the past two years to 8.6 million, or about 14 percent of the population, ISTAT said.

An even starker contrast is revealed when it comes to a work-sponsored pension plan. Of households with less than $50,000 in annual retirement income, only 27% depend on a pension plan for some of that income. In wealthier households, the percentage is more than double at 55%. Retirement savings accounts play an even smaller role in the household income of less wealthy retirees, contributing a major source of income for only 19%.

According to Gallup, retirees who can supplement Social Security payments with income from a pension plan or other source “appear to be doing much better.” That should hardly come as a surprise to anyone. Gallup also notes:

Income differences among retirees today may then be a continuation of income differences that were in place before they retired, and it so happened that higher-income workers were more likely than lower-income workers to have pension benefits.

That is possible, but not necessarily the case. The availability of pensions is relatively limited among workers who earn less than $50,000 a year. Unless such a worker is a government employee or a union worker still covered by a pension agreement, chances are that defined benefit pension plans have been replaced by a defined-contribution plan such as a 401(k) or other retirement savings plan. As Gallup puts it:

… [I]nvestors’ average 401(k) balance was roughly $77,000 at the end of 2012. That figure likely should have gone up by at least 10%, given the average increase in stock prices this year. However, if those nearing retirement age have balances around the national average, these balances will almost certainly be inadequate to fund their retirement, making them more dependent on Social Security.

See the Gallup press release for more details.

A combination of factors contributed to the increase in confidence, according to Gallup. Record-high stock prices, a lower unemployment rate, increasing home prices and moderating gasoline prices all played a part in the boost in confidence.

When assessing current economic conditions, Americans’ confidence improved to -12 last week, one of the best ratings since Gallup began this tracking poll five years ago. Looking further ahead, Americans’ confidence in the outlook for the U.S. economy rose to a positive reading of 2, the first time ever that the outlook has been in positive numbers.

The good news from Gallup is quite fragile, however, and if any of the positive factors should turn sour, a downturn in confidence could quickly return.

The organization reported:

Today’s national average price for a gallon of regular unleaded gasoline is $3.65. This price is seven cents more expensive than one week ago and 14 cents more than one month ago. The seven-cent weekly increase is the largest such spike since February and today’s national average price at the pump is the highest since March.

Much of the increase is due to oil prices, AAA management says. Since oil has continued to tick up toward $100 a barrel, there may not be relief through the balance of the summer.

AAA and other organizations put out estimates of how many people will travel on summer holidays, primarily on Memorial Day, the Independence Day and Labor Day. So far, there have been no dire predictions of sharp drops. If other consumer behavior is any measure, there will not be much change. So far, higher tax rates and persistent unemployment have not overwhelmed consumer spending. Road trips are relatively cheap, particularly in world in which purchases of expensive new cars and new or old homes have picked up. A surge in consumer spending has relegated gasoline prices to a back burner. That was not the case a few years ago, especially in 2008, when the recession was vicious and gas prices moved toward $4.

If Memorial Day is a reasonable litmus test, so far the consumer economy continues to hold its own, and may even have gained speed. A few cents a gallon more does not matter.

NABE panelists suggested an improvement in real gross domestic product (GDP) growth to 3% in 2014. Panelists suggest an even stronger decline in government spending this year relative to last year, which could negatively affect GDP growth. Although the panelists suggest that government spending will decline by 2.3% for 2013, they estimate that it will only decline by 0.9% in 2014. Year by year, the panel projected 2.1% GDP growth for 2013 and 2.9% GDP growth for 2014.

Panelists are more upbeat regarding consumer spending and residential investment in 2013 and 2014 relative to 2012. Panelists also predicted an improvement in the unemployment rate and in wages and output for this year and next year. The panelists suggest that personal consumption spending will grow at 2.3% in 2013 and at 2.6% in 2014, versus 1.9% growth in 2012. With some 70% or so of GDP tied to consumer spending, this measurement is very important to the GDP equations.

Overall, the panelists did not indicate any significant increase in inflation for 2013 and 2014. They also expect that the easy money under the current federal funds rate will remain unchanged for 2013 and 2014. We noted an improvement in the average annual unemployment rate. Panelists expect that unemployment will average 7.6% in 2013 and 7.1% in 2014. As far as year-end projections, those were put at 7.4% by the end of 2013 and 7.1% by the end of 2014.

Light vehicle sales totaled 14.4 million units in 2012 and the panel expects that this will rise to 15.4 million in 2013 and 15.9 million in 2014. Industrial production is expected to rise by 3.1% in 2013 and 3.5% in 2014. Residential investment is expected to grow by about 15% in 2013 and in 2014. Housing starts are expected to rise from 780,000 or so in 2012 up to a million units in 2013 and 1.18 million units in 2014.

The May 2013 NABE Outlook was generated with the consensus of macroeconomic forecasts from a panel of 49 professional forecasters covering the outlook for 2013 and 2014. Polling was conducted from April 16 to April 30.

The three-month moving average was also negative at -0.04 in April, but this is actually less bad than the -0.05 average reported back in March.

Today’s data is a weighted average of 85 different economic indicators. The design is to indicate that a reading above zero is positive and resembling growth. A negative reading represents economic contraction.

Over the weekend came news that Ben Bernanke was calling for more innovation to rescue the economy.

Bloomberg reports on efforts to fight tax evasion in the EU:

The agenda for this week will include stepping up the fight against tax evasion after finance ministers from Luxembourg and Austria last week blocked efforts to reach agreement on sharing tax data. The accord aims to set standards for how countries collect data on income residents earn in other nations.

“Priority will be given to efforts to extend the automatic exchange of information at the EU and global levels,” according to the draft.

So, it may be as hard to get an agreement as it will be to implement it.