How Has the Economy Fared Since the Last FOMC Meeting?
March 17, 2009
The biggest event risk this week is tomorrow’s FOMC rate decision and unfortunately the Fed could serve up a big plate of disappointment. Recent economic data has been mixed. The following chart which illustrates how economic data has changed since the January FOMC meeting and we can see that there have been improvements as well as deterioration.
There is not enough here for the Fed to jump gun and announce that they will start to buy U.S. Treasuries. I expect the script to remain the same with all of the key points from the January FOMC statement to be repeated. There are 2 other potential outcomes for Wednesday’s Fed meeting, but I deem them unlikely.
With more than 5 million Americans out of work, the odds certainly favor more weakness than strength in the coming months. In fact, it is almost hard to believe that consumer spending has not collapsed given the severity of this recession. In order to make an intelligent decision, Bernanke may opt to wait another month to see how the economy responds to the TALF program before unveiling any new initiatives.
It will be encouraging for the Federal Reserve however that the stock market is off its lows, consumer spending is holding steady and the housing market is rebounding. Easier monetary policy could still be needed but now may not be the right time for the nuclear decision of buying long term Treasuries. We expect the script to remain the same with the Federal Reserve reiterating that economic conditions warrant “exceptionally low levels of the federal funds rate for some time” and “they stand prepared” but make no commitment to buy longer term Treasury securities. They will also promise to use “all available tools” to stimulate the economy.
This outcome should be dollar bullish because it means that the central bank does not need to immediately print more dollars to expand their purchases.
Source: FX360.com
Posted in FOMC, Fed Rate Cut, Fed Rate Cut Expectations, Fed rate hike, Federal Reserve, forex blog
content rss
March 17th, 2009 at 7:25 pm
The EUR/USD facing important resistances 1.31 and 1.3060 fibonacci retracement, my plan is to sell this possible euro rally for tomorrow before the meeting.
This technical scenario could match perfectly with your bull predictions for the dollar.
March 18th, 2009 at 7:01 am
Hi,
Now all eyes is on the FOMC meeting tonight. Although investors expect the Fed to hold the rates steady at 0.25%, the trading risk may not be that clear cut as commentary following the rate decision is likely to spark volatility in the U.S. dollar as market participants weigh the effectiveness of the new policy.
If the FOMC fails to expand its rate of purchases, then we should see a rise in risk aversion as investors remain skeptical of the central bank�s approach to stimulate the economy.
So traders please trade with care.
Regards,
Dan (CEO of FTP)