FOMC is going to release its short-term interest rate decision today and most analysts agree that FOMC will keep current rates unchanged until at least Q3 or Q4 of this year, if not 2011, despite of recent positive economic releases in the Housing, Employment, and Retail sectors.
Even though there is no chance for a surprise rate hike, as predicted by the chart to the left (0.0%~0.25% is about 100% probability) the real focus is the FOMC statements on future monetary policy. The key point 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“, or more precisely, the “extended period” phrase, as traders will consider FOMC accelerating its rate hike schedule if this phrase is dropped, or if kept, that FOMC’s stance is likely to remain unchanged.
Here are some of the quotes from analysts put together by Businessweek Staff:
“Jan Hatzius, Goldman Sachs
We expect no changes to the key sentence in the [Apr. 28] FOMC statement that rates are likely to stay “exceptionally low for an extended period.” However, the committee is likely to recognize both the stronger growth and lower inflation data. A discussion of eventual asset sales is also likely, although we do not expect such sales anytime soon…”
“Neil Dutta, Bank of America Merrill Lynch
…we expect that the FOMC in its April statement is likely to:
—First, upgrade their growth assessment slightly.
—Second, offset the improved growth outlook by noting the continued slow recovery in certain key sectors, as well as “subdued” core inflation.
—And third, retain the “extended period” commitment to keep rates “exceptionally low.”
As a conclusion, I think it’s a done deal that the Fed’s will keep rates unchanged and the accompanied statement will probably acknowledge recent data, upgrade some economic projections, but keep everything inline with market forecast… At any rate, if you have never traded this release, it is better to stay out to avoid unnecessary risk.
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