FOMC Preview

April 25, 2012

In the six weeks since the last FOMC meeting,

  • The dollar has softened 0.7% against the euro in spite of a reintensification of euro debt tensions.
  • The dollar has also depreciated 1.7% relative to the yen.
  • The ten-year Treasury yields is 8 basis points lower on balance and has dwelled below the psychological 2.00% level for much of the past ten days.
  • Oil prices have fallen 2.4% but continue to hover above $100 per barrel.  Gold has fallen 3.2%.
  • U.S. share prices have been volatile but trendless.  From a technical standpoint, such look more vulnerable than in mid-March.
  • Rhetoric from Fed officials has become a bit less dovish.  U.S. consumer prices increased 3.7% at an annualized rate between December and March.
  • Economic data have been distorted by unseasonable weather and thus difficult to interpret.

The FOMC will be releasing updated views of individual committee members’ personal assessments of appropriate starting times for policy firming and projected federal funds target levels at end-2012, end-2013, and end-2014.  This feature was introduced in January as yet another means for making Fed policy more transparent but appears to have backfired.  There’s been a lot of criticism among market watchers that all this micro data has instead made Fed policy more confusing.  Whereas the sequence of FOMC statements have presented a picture of consistency that firming will not commence for a long time, the forecasts of the individual 17 policymakers in January underscored the diversity of opinion on the committee.  Three wanted policy firming to begin during 2012, and two others wanted to wait until 2016.  The mode of starting in 2014, reflected in the formal statements, was only endorsed by five people, presumably including Chairman Bernanke and N.Y. Fed President Dudley. 

The Chairman will give a press conference at 14:15 today, 105 minutes after the release of the statement.  The statement in March observed an economy that was then expanding moderately with improved labor market conditions, advancing investment and consumption but a depressed housing market.  Note was made of recent increases in energy prices, but officials said such would push up inflation only “temporarily.”  The forecast for inflation subsequently was that it “will run at or below the rate that is judged most consistent with the FOMC’s dual mandate.”

A change in the FOMC’s rate guidance is not expected today.  The March statement reaffirmed its conditional expectations that economic conditions are likely to warrant exceptionally low levels for the federal funs rate at least through late 2014.

  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 1.3067 77.92 1.98 12130 100.20
01/25/12 1.3027 77.96 1.97 12670 98.85
03/13/12 1.3096 82.76 2.08 13044 106.34
04/25/12 1.3194 81.35 2.00 13091 103.84

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

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