FOMC Preview

November 2, 2011

The FOMC will release a monetary policy statement at 12:30 EDT (16:30 GMT), and that will be followed by a Bernanke press conference starting at 14:15 EDT (18:15 GMT).  The table below gives the market vital signs when previous FOMC statement were released. 

There’s been some good news since the last statement on September 21st.  As hoped, U.S. real GDP and labor market trends have improved.  Stock prices are higher.  So unfortunately are oil prices.  Despite the unveiling of Operation Twist in September, a strategy to depress long-term interest rates by buying long-term Treasuries with the sales proceeds from short-term government paper, the 10-year Treasury yield is firmer now than then.  The dollar has been volatile by is little changed on balance.  The European debt crisis has dominated the news and represents an enormous potential drag on the global and U.S. economies. 

The Federal Open Market Committee has not been harmonious in its thinking.  Three of the ten members — each a regional president rather than a Board Director —  dissented from the decision in September to launch Operation Twist.  Those members were Kocherlakota of Minneapolis, Fisher of Dallas, and Plosser of Philadelphia.  Their objections ranged from thinking the initiative would be ineffective to inappropriate in the absence of deflation.  Minutes from the meeting, however, revealed that two other members, who did not actually cast dissenting ballots, in fact felt that Operation Twist didn’t go far enough.  These members seemingly preferred a more forceful response along the lines of QE3.  Thus, only half the committee actually sided with the majority decision.

The September statement called U.S. growth “slow,” inflation more “moderated,” and long-term inflation expectations “stable.”  The statement said that unemployment is too high to satisfy the Fed’s mandate and that inflation will probably settle below its ideal level.  In both that statement and the prior one, officials said that the federal funds target is likely to stay exceptionally low “at least through mid-2013.”  There has not been a decisive change since September 21 to abandon that guidance, nor for that matter to introduce a third round of quantitative easing at this time.

  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 1.3778 78.04 2.04 11803 93.42

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

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