FOMC Preview

May 1, 2013

The third of eight scheduled Federal Open Market Committee policy statements in 2013 is being released today at 14:00 EDT (18:00 GMT).  There will be no press conference afterward.  The previous statement on March 20 upgraded assessments of the labor market and housing sector, observed a more restrictive fiscal policy, called longer-term inflation expectations stable and released forecasts that 1) put unemployment in 2014 still above the 6.5% threshold for keeping an exceptionally lower federal funds rate and 2) left inflation through 2015 below 2.5%, a level above which such would take priority even if joblessness were still to high. 

Policy settings were left unchanged in March and are not likely to change now, either.  The fed funds target is 0 to 1/4%, and a total of $85 billion monthly are being purchased of mortgage-backed securities ($40 bln) and long-dated Treasuries ($45 bln).  The dollar, commodities, and long-term interest rates have fallen in the six weeks since the last FOMC statement, and U.S. equities have extended their rally.  While the housing market has continued to strengthen, the labor market, which is a more important monetary policy guide, has sputtered anew.  The March statement and press conference plus assorted Fed official comments over ensuing weeks had led markets to anticipate that the size of quantitative easing would be throttled back after midyear.   Today’s statement will allow the Fed to quash such speculation or  permit it to continue. 

The Fed’s guidance on the likely timing of the first hike in the fed funds hike has been specific, but clues about the path of its quantitative easing have in contrast been vague.  On the former, the guidance is expressed in data-based quantitative terms, whereas the criteria for QE are qualitative other than to indicate that asset purchases will probably end well before the onset of an uptrend in the fed funds target.  Just as Jeffrey Lacker dissented to the Fed’s extreme accommodation in 2012, Esther George, President of the Kansas City Fed, has done so in 2013.  She fears increased risks may result to future economic and financial imbalances and to long-term price expectations.

The table below documents the evolution of key vital market signs at the time of previous FOMC policy announcements.

  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 1.2948 95.65 1.94 14497 92.82
05/01/13 1.3208 97.23 1.63 14788 91.11

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

Tags:

ShareThis

This entry was posted on Wednesday, May 1st, 2013 at 8:02 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