Today’s FOMC Meeting Minutes will probably dredge up memories from the last FOMC rate Statement, where the market took a dive following the FOMC Statement. Here’s the complete statement released by the Feds on September 21, 2011:
US Interest Rate
Fed. Chairman Bernanke is expected to announce new measures today to further ease the long-term interest rate while try to resuscitate the ailing economy suffering from perhaps the worse recession since the 1920s. Since Bernanke’s announcement in Jack Hole, Wyoming on August 26, of changing September’s Fed meeting from a single day to two days, market has been speculating that Bernanke is up to something… as a matter of fact, many analysts are predicting that Bernanke will do one of three things:
While the market isn’t expecting any changes in today FOMC Federal Funds Rate decision, the accompanied Statement and the Press Conferece at 2:15pm are potentially trend changers. With S&P’s recent downgrade still affecting the market, Bernanke will have a chance to calm the market today. Understand that even though there are no expectation of QE3, it is widely believed that Bernanke will stick to his “All the Options” are on the table speech, signaling that further easing has not been ruled out…
Today’s FOMC Minutes will probably not be a market mover because almost everything was covered during Bernanke’s FOMC Press Conference immediately after the rate decision on June 22, 2011.
However, given the recent events, namely the NFP release on Friday, we could expect some renewed speculation for further Fed action, possibly even lead to QE3. But realistically speaking, considering that this Minute is for the rate decision 20 days ago, we’ll probably not see strong market volatility UNLESS there were extensive discussions on further stimulus or concerns that may add to the current risk aversion sentiment… if that’s the case, then expect to see some weakness in the USD.
Here are some of the highlights for today’s FOMC Press Conference by Bernanke.
The revised economic projection was released a few minutes earlier, here are the details:
GDP:
- 2011 GDP 2.7-2.9% (3.1-3.3% prior)
- 2012 GDP 3.3-3.7% (3.5-4.2% prior)
- 2013 GDP 3.5-4.2% (3.5-4.3% prior)
Unemployment:
- 2011 8.6-8.9% (8.4-8.7% prior)
- 2012 7.8-8.2% (7.6-7.9% prior)
- 2013 7.0-7.5% (6.8-7.2% prior)
PCE inflation:
- 2011 2.3-2.5% (2.1-2.8% prior)
- 2012 1.5-2.0% (1.2-2.0% prior)
- 2013 1.5-2.0% (1.4-2.0% prior)
While the market isn’t expecting any changes in today FOMC Federal Funds Rate decision, the accompanied Statement and the Press Conferece at 2:15pm are potentially trend changers.
With QE2 scheduled to end this month, Bernanke will be facing the difficult task of addressing the market as to where the Feds stand on future monetary policy, inflation target, economic growth, and of course, Unemployment Rate.
Here’s what most analysts predict:
The real market mover will probably be the accompanied statement, where Bernanke is expected to mention his plan to control the exapnding balance sheet which sits at about 3 trillion USD without risking further inflation. The Fed will probably propose to create a 600 billion Treasury Buying Plan to boost asset prices and convince Americans that the worst part of the economic downfall is over. The idea is to liquidate almost 1.4 trillion in troubled assets (bonds) on the balance sheet and sell them to private equity buyers and using the proceeds to buy longer dated treasuries. Ultimately, the Fed wants to provide a “Bull Flattener” in which long term and short term rates balance to make loans less expensive.
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