Vital Market Signs When FOMC Has Met Previously

March 18, 2009

When today’s FOMC announcement is released at around 14:15 EDT (18:15 GMT), Fed watchers by and large do not expect any significant surprises to break the pattern of highly transparent FOMC announcements.  In this use, transparency means that other means of communication between formal FOMC meetings have been utilized to prepare markets to expect whatever action is taken.  What that also implies is that the meetings are a rubber stamp and no longer make policy.  Instead, such is a continuous process, and that the Committee’s final decision does not spring from what is discussed at the meetings.

Consensus expectations are that rates will not be changed today, nor will new quantitative easing be introduced.  The Fed funds target since December 16 has been zero to 0.25%, or a mid-point of 0.125%.  It was lowered from 1.0% at that meeting and not changed further when the committee met on January 28th of this year.  Previous FOMC rate cuts in 2008 amounted to 50 basis points on October 29th, 50 bps October 8th, 25 bps on April 30th, 75 bps on March 18, 50 bps on January 30th, and 75 bps on January 22nd. In the second half of 2007, the Fed funds rate was cut by 50 bps on September 18th and 25 bps each on October 31st and December 11th.  Altogether, the target rate has been lowered 512.5 basis points from a cyclical peak of 5.25%.  Some quantitative easing has also been brought to bear on the problem of a credit crunch, and such tactics will carry forward the effort.  But at this juncture, it appears that officials would like a little pause to assess the impact of everything that has been done up to this point.

The FOMC statement released after the January 28th meeting predicted “exceptional low levels of the federal funds rate for some time,” a throw-back to a technique used 2003.  Minutes from that meeting can be reviewed by clicking here.  The FOMC tightened the Fed funds rate in 17 consecutive increments between mid-2004 and mid-2006.  The slow and painless path of that adjustment was one factor that allowed the debt bubble to fester.  Key market indicators at selected previous meetings are presented below.  Since officials met seven weeks ago on January 28th, 10-year Treasury yields have climbed 34 basis points, oil prices on net have risen 12.8%, and the dollar has advanced 8.7% against the yen and 0.8% against the euro.  But the DOW is 12.7% lower than then in spite of a good run-up last week.

  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 1.3253 90.01 2.61 8356 42.92
03/18/09 1.3143 97.87 2.95 72
92
48.41

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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