Vital Market Signs When FOMC Met Previously
January 28, 2009
| EUR/$ | $/JPY | 10Y, % | DJIA | Oil, $ | |
| 06/30/04 | 1.2173 | 109.44 | 4.63 | 10396 | 37.95 |
| 06/30/05 | 1.2090 | 110.89 | 3.96 | 10370 | 57.00 |
| 06/29/06 | 1.2527 | 116.07 | 5.20 | 11077 | 73.41 |
| 06/28/07 | 1.3452 | 123.17 | 5.10 | 13456 | 69.82 |
| 08/07/07 | 1.3749 | 118.55 | 4.73 | 13510 | 72.27 |
| 09/18/07 | 1.3888 | 115.75 | 4.51 | 13475 | 81.42 |
| 10/31/07 | 1.4458 | 115.28 | 4.42 | 13873 | 93.59 |
| 12/11/07 | 1.4682 | 111.49 | 4.11 | 13645 | 89.78 |
| 01/30/08 | 1.4792 | 107.31 | 3.70 | 12454 | 91.70 |
| 03/18/08 | 1.5786 | 98.73 | 3.41 | 12257 | 107.53 |
| 04/30/08 | 1.5562 | 104.58 | 3.83 | 12953 | 111.54 |
| 06/25/08 | 1.5568 | 108.37 | 4.18 | 11837 | 133.62 |
| 08/05/08 | 1.5445 | 108.42 | 3.97 | 11484 | 119.82 |
| 09/16/08 | 1.4144 | 105.16 | 3.36 | 10936 | 91.18 |
| 10/08/08 | 1.3625 | 99.87 | 3.50 | 9447 | 87.02 |
| 10/29/08 | 1.2933 | 97.15 | 3.81 | 9145 | 67.38 |
| 12/16/08 | 1.3790 | 90.14 | 2.52 | 8687 | 44.14 |
| 01/28/09 | 1.3234 | 89.71 | 2.53 | 8321 | 41.51 |
In the six weeks since the FOMC last gathered and cut the Fed funds target to a band of 0.0-0.25% from 1.0%, ten-year Treasury yields have been steady on balance. Although 0.5% weaker against the Japanese yen, the dollar has recouped 4.2% against the euro and about that same amount against a trade-weighted index of other currencies. Such appreciation would exert a similar effect on the U.S. economy as a rate hike of 40-50 basis points, neutralizing half the stimulus of December’s rate cut. Stock prices are 4.2% lower now than then, and oil prices have eased another 6% but been unable to sustain sub-$40 levels. Economic news in the U.S. and world darkened, and the situation of many financial institutions grew more dire.
Presidential power was transferred to the Democrats, and it quickly became clear that Obama’s call for a new bipartisanship would be ignored. Despite a much bigger voter mandate than when Bush beat Gore eight years ago, President Obama will have a much harder time legislating fiscal change than Bush did in 2001. That probably translates into more delay in implementing a stimulus and greater-than-expected compromise in the composition of the economic support.
A considerable burden still rests on monetary policy. But the Fed’s scope for reducing nominal short-term interest rates is now exhausted. The statement that will be issued in just over three hours takes on even more importance than before. It will be tempting for officials to speak in broad terms, pledging to do whatever is required. One challenge is to convince the business, investor, and voting public that the Fed is issuing more than words and that a basis exists for confidence about the future.
Copyright 2009 Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Dollar
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