2:15pm (NY Time) US FOMC Rate Decision Forecast 0.25% Previous 0.25%
ACTION: USD/JPY BUY 0.50% SELL <0.25%
FOMC is going to release its short-term interest rate decision and mosts analysts agree that FOMC will keep current rates unchanged until at least Q3 or Q4 of this year, if not 2011. Federal Reserve needs more economic data to justify a surprise hike in the interest rate, and judging from the past 3 months of NFP releases, we are not quite yet there.
However, the real focus is always the FOMC statements on future monetary policy. The focus will be on the statement “… subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period“, which means that there are no expectations for rate hike on the horizen.
There is an article by Steven K. Beckner which analyzed this situation quite well, here are some quotes from his article on iMarketNews:
… “Speaking for the FOMC majority in his Monetary Policy Report to Congress on Feb. 24, Bernanke not only reiterated the “extended period” pledge, he said “the FOMC is going to have to continue to evaluate whether additional stimulus would be necessary depending how the economy evolves, so we’ll continue to look at that.”
The Fed chief downplayed inflation risks, stressing that unemployment is “the biggest problem we have” — a sentiment echoed by other Fed officials.
Although Friday’s February employment report was not as bad as expected, with non-farm payrolls falling just 36,000 and the unemployment rate remaining unchanged at 9.7%, Bernanke and his colleagues are going to want to see a pattern of payroll gains before they relax their concern that weak labor markets will depress incomes and in turn spending.
In further indications that he is not inclined to tighten policy soon, Bernanke left the door open to further purchases of mortgage backed securities and agency debt beyond March in his Congressional testimony. And he said the Fed would also be evaluating whether it should extend its financing of new commercial mortgage backed securities past the scheduled June 30 expiration date.
Nor do other FOMC voters seem in any hurry to move from normalizing Fed lending operations to normalizing rates or shrinking the bloated $2.3 trillion Fed balance sheet.
Boston Fed President Eric Rosengren said on March 3 that “despite the Fed’s aggressive use of both traditional and non-traditional policy tools, the economy is experiencing a slow recovery from a very severe recession, particularly when it comes to jobs.” And he said “rates are very low … totally appropriately.”
The prior week, Cleveland Fed President Sandra Pianalto said “this is a recovery that just does not feel much like a recovery” as she emphasized the high level and duration of unemployment and low capacity utilization. “Without a pickup in hiring, it will be hard to sustain greater consumer spending in the economy more broadly, and without more spending, hiring will in turn remain subdued,” she warned.
Pianalto said there “will eventually come a time when we will have to scale back the degree of policy accommodation,” but she suggested that time is far off by saying she does “not see warning signs of inflation pressures on the horizon.” She said “the gravitational pull of the severe recession … is still rather strong,” and that means it will “take somewhat longer than usual before we see a more robust pace of job creation.”
St. Louis Fed President James Bullard said following the discount rate hike that a funds rate increase is “as far away as it ever was.” He called market expectations of Fed tightening later in 2010 “overblown.” The market has priced in “too high a probability of tightening this year,” Bullard said. “Some of that probability should be moved to next year.”
New York Fed President William Dudley had previously said “extended period” means “at least six months,” perhaps “much longer.” “…
To summarize, I think it’s a done deal that the Fed’s will keep rates unchanged and the accompanied statement will be close to a carbon copy of last statement…
At any rate, if you have never traded this release, it is better to stay out to avoid unnecessary risk. Watch how I trade this release live with my updated video tomorrow, I will go over several reasons for my decision as I evaluate this release in real time; once again, if you have never traded this release, stay out of the market.
Henry
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{ 1 comment… read it below or add one }
Where’s the video for this event?