Vital Market Signs When the FOMC Met Previously

March 16, 2010

Monetary policymakers at the Federal Reserve have a dual mandate to promote stable, low inflation and to maximize employment.  As a result, the Fed pays more attention than most central banks to the unemployment rate.  The FOMC is not expected to modify the belief of officials that present economic conditions including a soft labor market are “likely to warrant exceptionally low levels of the federal funds rate for an extended period.” During the past 25 years, the highest jobless rate when the Fed began a tightening cycle was 6.6% in February 1994.  That was 1.2 percentage points below the prior peak and came 20 months after such was touched.  The last tightening cycle began in June 2004 when the U.S. jobless rate stood at 5.6%, 0.7 percentage points lower than its peak of 6.3% one year earlier in June 2003.  The unemployment rate last month was 9.7%, four-tenths of a percentage below last October’s high of 10.1%.  However, many analysts including President Obama’s advisors expect unemployment at end-2010 to be no lower than now.

My pre-FOMC meeting table of market signs is reproduced below.  Monetary conditions have actually tightened marginally since the last FOMC meeting in late January.  The dollar is up 2.3% against the euro and 1.0% against the yen, and ten-year Treasury yields have risen 6 basis points on net.    The 10-year’s movement essentially represents noise within a trendless pattern going back to mid-2009.  At each of the previous six FOMC meetings, the 10-year yield lay within a narrow corridor of 3.50% to 3.71%.  The DOW is 5.0% higher now than at the last FOMC meeting but up less than 2% since the meeting in December.  Oil prices have undergone the most significant change since the January meeting with a rise of 10.7%.  It is typical for oil prices to appreciate in the spring as such did in 2008 and 2009.

  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 1.3734 90.41 3.67 10651 81.15

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

Tags:

ShareThis

This entry was posted on Tuesday, March 16th, 2010 at 9:29 am and is filed under Central Bank Watch. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Comments are closed.

css.php