FOMC: Continuing Sober Talk but No Fresh Initiatives Unveiled this Month

August 1, 2012

The FOMC statement downgraded its economic assessment and the specific view on jobs growth, but the market view was correct that new action was unlikely.  Officials didn’t even modify the late 2014 or later forecast for its initial federal funds rate hike, and Jeffrey Lacker, a voting branch president, again even object to inclusion of such a time period.  New Fed forecasts will be provided and a subsequent press conference held after next month’s scheduled meeting, which is six weeks from now.  That will also more time to see how the euro crisis unfolds and to assess the effects of the 6-month extension of Operation Twist to end-2012.  That program is lengthening the average maturity of the Fed’s balance sheet, with the hope of depressing long-term interest rates. 

The immediate market response to today’s wait-and-see statement is a firmer dollar against the euro and yen and lower commodity and share prices.  These moves have not been substantial.  Tomorrow’s ECB meeting remains a big uncertainty and has always been viewed as a more influential event than the FOMC statement this month.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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