Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Fed Holds Policy Rate Steady, Signals Intention to Complete Asset Purchases and Maintain Balance Sheet Size

Interest-Rates / US Interest Rates Apr 28, 2011 - 03:24 AM GMT

By: Asha_Bangalore

Interest-Rates

Best Financial Markets Analysis ArticleYesterday's post-FOMC meeting analysis has two components:  policy statement and Chairman Bernanke's press conference.  Starting with the policy statement, the Fed held the federal funds rate unchanged at the narrow band of 0 to ¼ percent.  There were no dissents, although in recent speeches, Fed Presidents Plosser and Fisher (both voting members) had voiced their concern about imminent inflationary pressures.


The Fed's views about the economy shows a minor difference from the March 15 policy statement.  The first sentence of the today's policy statement describes the economic recovery as "proceeding at a moderate pace."  The March statement upgraded the economic recovery to be on "firmer footing" from the January 2011 statement which simply noted that the "economic recovery is continuing." 

The Fed's take on spending components of GDP was left intact, with housing sector continuing to be depicted as "depressed" and household expenditures and equipment and software outlays as expanding  The Fed indicated that "inflation has picked up in recent months" but continues to view higher prices of energy and other commodities as "transitory." Rhetoric about closely tracking inflation and inflation expectations was retained in today's statement.

The policy statement settled the uncertainty about whether the Fed will complete the $600 billion purchase of Treasury securities, referred to as QE2, by noting that it "will complete" these planned purchases. 

There was no change to the Fed's near term outlook for monetary policy as the phrase "low levels for federal funds rate for an extended period" continues to be part of the policy statement. 

The much awaited first press conference of Chairman Bernanke after an FOMC meeting revealed that the Fed plans to reinvest maturing securities and maintain the size of the balance sheet.  Effectively, the amount of monetary policy easing will be unchanged after the completion of the $600 billion purchase.  The Fed's balance sheet as of April 20 stood at $2.67 trillion (see Chart 1).  The Fed has purchased $548 billion of the $600 billion target so far. 

 
The looming question at the present time is the course of monetary policy if oil prices continue to advance.  Chairman indicated that the Fed expects oil prices to stabilize and trend down.  In the event that this does not occur, Chairman Bernanke noted that the evolution of inflation expectations would be the Fed's guide to monetary policy action.  He went on to add that if inflation expectations fail to be stable and well anchored (which is the case at present) the Fed will have to take action.  The five and 10-year break-evens obtained from Treasury inflation-protected securities are currently at levels seen prior to the onset of the financial crisis (see Chart 2).  Markets will be tracking these levels closely in the days and months ahead.

 
Chairman Bernanke responded to a question about the meaning of the phrase "extended period" by noting that it would imply the Fed is unlikely to take any action for a "couple of meetings."   June 21-22, August 9 and September 20 are dates of the next three meetings of the FOMC . 

There are many unanswered questions about the Fed's exit strategy such as the actions it is likely to take to tighten monetary policy when economic conditions improve and inflation is a threat.  Chairman Bernanke pointed out that the early step would be to stop reinvesting all or some part of maturing securities.  In other words, if maturing securities are not replaced, the action would be akin to open market sale of securities, the action the Fed typically takes to tighten monetary policy. 

The Fed also made available its latest forecast of real GDP growth, inflation, and unemployment rate today.  The Fed has lowered projections of real GDP growth for 2011and raised estimates of the unemployment rate, overall inflation, and core inflation for 2011 (see table below) compared with the predictions published in January 2011. 

 
 
Source: http://www.federalreserve.gov/newsevents/press/monetary/fomcprojtabl20110427.pdf

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules