FOMC MEETING PREVIEW: ANOTHER SNOOZE FEST
Tomorrow brings us the beginning of another FOMC meeting with a Wednesday decision. The Fed will announce their decision on rates, release their quarterly forecasts for the economy, provide some details on a potential QE3 and will finish off the big event with the new Q&A by the Chairman.
If you’ll recall last quarter, the Fed hinted at remaining accommodative for what feels like a permanently extended period. Markets loved the news and a speculative frenzy ensued as commodity prices went ballistic. Unfortunately, nothing of any significance was announced with regards to actually impacting the economy and the markets have since responded with their recent swoon. And that’s the conundrum the Fed now finds itself in. Their policy choices are depleted.
Tomorrow’s meeting is likely to result in no change in the Fed Funds Rate, no hint at QE3, remaining accommodative for an extended period, a marginal downgrade in the economic outlook and a very boring press conference with the Chairman. In other words, the whole thing should be a big snooze fest. Given the Fed Funds futures curve I think it’s safe to say that the markets largely expect this meeting to be no different than the last few. The nearest rate hike is currently projected all the way out to November of 2012! Now that’s accommodation.
TPC,
So no targeting certain rates a la B. Gross’s tweet??
Pres,
You read this? http://pragcap.com/should-the-fed-target-rates
Yep, thought it was a good piece. The reason I think they may try something like this is several: 1) it has been done before (thus BB is not going off the reservation); and 2) it may have some indirect balance sheet help, allowing big time refis perhaps.
So I see this as a combo of Operation Twist and QE3 lite – i.e. reinvesting securities.
Plus, pimpco is pretty juiced in at the fed, be surprising if he said that for no reason.
some words from China say targeting CPI at 5%. any validity about that?
I’m wondering if equities, having failed to capitulate yet, are holding out once again for some hope from Bernanke on Wed.
I really struggle to see why everybody thinks some new stimulus is coming; the threshold for Fed stimulus has been at least ~20% market corrections and I would assume that, given the political heat they’ve received for QE2, that might be even higher now. Why would they announce anything, whether rate targeting or QE3, after only a 7% correction LOL?
I wonder also. Could really disappoint on Wednesday if the Fed downgrades economic outlook and no QE3 is hinted at….
“Could really disappoint on Wednesday if the Fed downgrades economic outlook and no QE3 is hinted at….”
Hard for me to believe the Bernank would do anything to downgrade outlook/tank the markets. My guess is the “downgrade” will be totally couched as “we are slowly getting better” and therefore, no need to take action. It will be interesting to see the Rorschach presented and how the market reacts. I’m guessing (haven’t placed any bets) that the market wants something positive, so it will see something positive in his remarks, bland and neutral tho’ they shall be….