FOMC Preview

March 20, 2013

This marks a release time change for the FOMC statement.  These were released previously at about 14:15 local time but from hereon will arrive at 14:00 EDT.  The statement will be followed 30 minutes later by the start of a Bernanke press conference and the unveiling of new macroeconomic forecasts and indications of the frequency distribution among FOMC members of their policy preferences.

It’s no secret that a dispersion of predispositions exists among Federal Open Market Committee members.  The dovish camp is led by Bernanke.  This position of power over the communication power and the fact that the dovish camp includes a majority of policymakers allows the formal statements and press conference tone to reflect their view for the most part.  However, consensus-building and compromise are important.  In between FOMC meetings, other views are presented in the myriad of speeches and other public appearances that all Fed officials give.  Bernanke knows that his desire for expectations of low short term interest rates well into the future can be undermined by what signals to the contrary other officials might send.  Bernanke also wants low long-term interest rates.  Quantitative easing promotes this goal in theory but doesn’t guarantee such.  If markets believe the tide of opinion is shifting in favor of the hawks or become convinced that U.S. economic trends will force opinion to shift to the hawkish camp, rates will go higher.  As boss and commander of the these press conferences, Bernanke has a number of objectives.  He must leave no doubt that excessive inflation (over 2.5%) will not be tolerated.  He must exude confidence that the Fed will pare down the balance sheet when that needs to be done.  But he has to remove doubt about that the message of extreme accommodation embodied in today’s and recent formal statements are a better reflection of what markets can expect in the future than contrary views heard from other Fed officials.

The table below documents vital financial market signs at the time of prior FOMC announcements.  Significant changes since the last meeting on January 30 include dollar gains of 4.8% and 4.9% respectively against the euro and yen, a nine-basis point decline in the ten-year Treasury yield, and a 4.1% advance in the Dow Jones Industrials Average, which broke during the period above its prior record high of 14,165 in October 2007.  The cost of West Texas Intermediate oil has retreated 5.2% and is again closer to $90 than $100 per barrel.

  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
08/01/12 1.2300 78.10 1.49 13028 88.98
09/13/12 1.2895 77.43 1.72 13342 97.60
10/24/12 1.2948 79.75 1.77 13115 85.72
12/12/12 1.3082 83.24 1.70 13325 87.13
01/30/13 1.3584 91.16 2.02 13949 97.63
03/20/13 1.2947 95.55 1.93 14520 92.60

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

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