FOMC Preview
June 20, 2012
Most market participants assume the Fed will provide some gesture to ameliorate financial market anxiety after today’s meeting, so a greater reaction afterward seems likeliest if the Fed takes no initiatives. Doing nothing would be interpreted as tightening, since the current phase of Operation Twist — sterilized operations to lengthen the maturity of the Fed’s balance sheet — expires this month. Stimulus could take any number of forms.
- Extending Operation Twist for more months.
- Unveiling a third phase of outright quantitative easing.
- Tweaking the projected interval for which the 0-0.25% Fed Funds rate target is likely to remain beyond “at least late 2014.”
- Releasing new macroeconomic forecasts that show unemployment on a higher trajectory than predicted in March or inflation at lower levels.
The reasons why the Fed might ease are 1) softer-than-assumed data since the previous meeting and 2) to cooperate with the growth-supporting spirit of the G20 summit, and 3) to pre-empt potential drags from tighter U.S. fiscal policy and the euro debt and banking crisis. Reasons to make no change are 1) not to rock the political boat and create additional Republican animosity toward the central bank and 2) a view that the data have been mixed and not conclusively weak to warrant stimulus at this time.
Market changes since the April 25th meeting will have mixed effects on the U.S. economy. The dollar had advanced 4.2% against the euro but fallen 2.6% relative to the yen. The DOW is now 2.0% weaker than then, but 10-year Treasury yields have declined by a substantial 31 basis points.
The FOMC’s decision at 16:30 GMT will be followed by Bernanke’s press conference at 18:15 when quarterly forecasts of growth, inflation and individual FOMC member preferences regarding future policy will be released. A 19.7% plunge in oil prices will boost growth and dampen inflation. The dollar has risen
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 | 1.3226 | 81.37 | 1.97 | 13096 | 104.13 |
06/20/12 | 1.2693 | 79.28 | 1.66 | 12837 | 83.63 |
Copyright Larry Greenberg 2011. All rights reserved. No secondary distribution without express permission.
Tags: FOMC preview