FOMC

January 26, 2011

Some meetings of the FOMC attract tremendous prior attention.  This has not been one of those although the first meeting of every year creates some uncertainty as four new reserve bank presidents take their place as voting members.  Tom Hoenig of the Kansas City Fed was a voting member in 2010 and cast a dissent at each meeting last year in favor of a more hawkish rhetorical and action-related stand.  Hoenig is not a voting member in 2011.  My FOMC table below shows vital market indications at the moment of the FOMC’s prior announcements.  The most striking difference since the last meeting on December 14 is that the ten-year Treasury yield is virtually unchanged on balance in spite of data that point to improving economic growth late in 2010.  An 85-basis point rise over the six weeks between the FOMC’s November and December meetings had been widely blamed on the second round of Fed quantitative easing, dubbed QE2.  Since mid-December analysts have upgraded projected U.S. growth in 2011 in line with data trends, an extension of the Bush tax cuts, and a huge stimulus package of new spending increases.  Euphoria has been reinforced by strong earnings reports this month and a solid rise in equity prices.  The dollar has weakened slightly on balance against the euro and yen, and more evidence has surfaced of Chinese and Opec diversification away from the U.S. currency.

The Federal Open Market Committee is not expected to announce any policy changes.  The rate range of 0-0.25% will be retained, and so probably will the conditional forecast of exceptionally low levels for an extended period, which Hoenig especially opposed.  No changes in the planned $600 billion of Treasury purchases through June are anticipated.  40% of that program has thus far been completed, and it is not likely to be extended beyond June.  U.S. core inflation has been below 1.0% since last April, and the jobless rate is elevated at 9.4%.  QE2 was imposed because officials were frustrated with progress toward their twin mandates of fostering maximum employment and price stability.  The assessment of growth conditions probably will be upgraded, however.  The announcement will be made around 14:15 EST, about two hours from the time of this writing.

  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 1.3115 98.13 2.94 7340 47.73
04/29/09 1.3331 97.06 3.02 8194 51.05
06/24/09 1.3984 95.43 3.59 8373 68.76
08/12/09 1.4221 96.17 3.71 9366 70.64
09/23/09 1.4779 91.50 3.50 9859 69.13
11/04/09 1.4884 90.75 3.51 9896 80.66
12/16/09 1.4542 89.78 3.56 10478 73.14
01/27/10 1.4045 89.49 3.61 10148 73.31
03/16/10 1.3756 90.64 3.67 10645 81.45
04/28/10 1.3157 94.10 3.75 11043 82.57
06/23/10 1.2284 90.12 3.13 10307 76.50
08/10/10 1.3107 85.85 2.81 10605 79.94
09/21/10 1.3132 85.21 2.66 10747 73.05
11/03/10 1.4059 81.35 2.53 11174 84.59
12/14/10 1.3423 83.37 3.38 11497 88.47
01/26/11 1.3667 82.34 3.39 11971 86.33

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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