FOMC Day

June 22, 2011

The Federal Open Market Committee policy statement will be released at 12:30 EDT and followed by an hour press conference at 14:15 EDT.  The statement from April 27 said the “recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually,” but the view on commodity-inspired inflation was expressed with greater concern.  The critical paragraph dealing with rate guidance was retained verbatim without any hint of near-term modification:

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. 

Nor, for that matter and in subsequent remarks by Chairman Bernanke, were clues dropped that a third round of quantitative easing is likely to follow the end of QE2 this month.  Although growth prospects have darkened since late April, the collateral problems associated with a possible QE3 such as its voter unpopularity and unfavorable impact on the Fed’s exit strategy seemingly rule out a surprise announcement of more quantitative easing today.  The table below of vital market levels at the time of past FOMC policy statements shows that Treasury yields have plunged 40 basis points since the April meeting, and the Dow Jones Industrials index has declined by 3.5%.  Dollar movements have been mixed, with a loss of 3.0% against the yen but a rise of 1.8% relative to the euro.  Oil prices have retreated nearly 16%.  In April, Bernanke opined that the end of QE2 would have no significant market or economic impact; one has to wonder if he’s having second thoughts given the deepening soft patch as end-June approaches. 

Bernanke’s first press conference elicited a few comments on the dollar.  Fed officials rarely talk on this topic, but critics of QE2 have complained that quantitative easing was a stealth soft-dollar policy in practice and by design.  Bernanke merely said that the pursuit of the Fed’s dual mandate of jobs maximization and price stability would complement the Treasury’s strong dollar goal.  Another issue sure to draw close interest at the press conference will be fiscal policy and, specifically, how the Fed feels about the brinksmanship in Congress over raising the U.S. debt ceiling.

  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 1.3658 82.55 3.41 12001 87.36
03/15/11 1.3969 81.04 3.29 11815 98.09
04/27/11 1.4665 82.63 3.36 12612 112.48
06/22/11 1.4408 80.11 2.96 12173 94.68

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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