FOMC Day

December 13, 2011

The Federal Open Market Committee held its eighth and final regularly scheduled monetary policy meeting of 2011 today and will release its formal statement at about 14:15 Eastern Standard Time (19:15 GMT). This is not one of the meetings to be followed by a Bernanke press conference.  That fact and somewhat better-than-expected U.S. economic data since the last meeting on November 2nd suggest that this will not be a particularly newsworthy event.  Compared to the meeting six weeks ago, the dollar is 4.1% stronger against the euro but 0.4% softer relative to the yen.  The Dow Jones Industrials Average has risen 2.8%, and oil prices are 8.3% stronger.  The yield on the 10-year Treasury note is a mere two basis points higher at a comfortably low 2.05%.

The November 2 press release upgraded the assessment of U.S. growth but accentuated the persistence of downside risks associated with the outlook.  That mix of good and bad news can apply equally well now.  Likewise, the prediction that unemployment will not be falling quickly enough to meet the Fed’s mandate, and that inflation will settle back to a level at or below what’s consistent with the central bank’s other mandate are equally also still true.  These facts justify Operation Twist — a plan launched in September and running through mid-2012 to lengthen the maturity of Treasury holdings buy doing $400 billion of purchases at the long end and sales at the short end — but probably will not warrant expanding Operation Twist at this time.  In November, only Charles Evans of the Chicago Fed, wanted to stimulate policy further, as the other nine committee members supported doing nothing new.  That 9-1 vote likely will not have changed.

The main thrust of Fed innovation has been directly lately toward tighter, more directed communications.  In this way, a virtual inflation outlook could be implemented without going to the trouble of subjecting such a recommendation to the approval of a hostile congress.  In the statement of August 9, Fed guidance of future rate policy took the step of indicating that a rate hike before mid-2013 is unlikely so long as inflation remains contained.  One way to enhance communication would be to say that the fed funds rates will not be raised so long as unemployment is higher than some ceiling level, say 7.5%, and while inflation and expected inflation both remain consistent with meeting the Fed’s price stability mandate.  Most analysts think further enhanced communications are  likely to be delayed at least until after the January 24-25 meeting and not introduced now, because a Bernanke press conference is planned then.

The table below shows market vital signs at the release time of previously scheduled FOMC statements.

  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 1.4392 80.12 2.97 12175 94.87
08/09/11 1.4234 77.09 2.36 10993 81.76
09/21/11 1.3778 76.34 1.93 11377 86.74
11/02/11 1.3724 78.11 2.03 11805 92.77
12/13/11 1.3178 77.77 2.05 12141 100.47

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

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