Fed

• Longer run inflation should see some lower pressure for headline and core. Short term may see some uptick still
• Tight credit restraining economic activity.  Will take some time for headwinds to deminish.
• Some time before see growth at or above trend
• Economy has been 'very subdued'.  See that in employment.  Don't know if will be charaterized as a recession
• Stonger dollar is a relief for the inflation outlook. The dollar has declined for some time and exports have benefitted.
• It will pay to be paient at this point with regard to monetary policy. Inflation and Inflation expectations seems to have diminished.

Chairman Bernanke's comments on the US dollar yesterday reflected a change in heart on the Fed's position on the US dollar.  To print out the article, click on the PDF attachment at the bottom of the report.

Forex Analysis: The Fed's Change of Heart on the Dollar

For an analysis of the Bernanke comments and why it might be important for the dollar, please click on the following Attached File.

The market has calmed down as the European/London session comes to a close.

USDJPY remains above the support level of 105.01 to 105.10.   The low has been 105.14 since the break higher.

Highlights from FED's Lockhart:

• INFLATION EXPECTATIONS ARE ELEVATED, IS A SERIOUS CONCERN
• Believes that a slowing economy will bring inflation down
• Says that credit environment for broad swath of US borrowers is quite constrained
• Adds that there is a good possibility that the US is in the low growth period
• US may avoid recession on technical basis but economy is weak
• Policy has to remain flexible to deal with whatever event may come

Highlights from Cleveland FED President Pianalto:

• Inflation presents key risk to outlook
• Environment is currently challenging
• FED's policy and strategy remains compatible with low and stable inflation rate and FED cuts should help mitigate economic risks
• US core CPI rising faster would be preferential
• USD depreciation is putting upward pressure on relative commodity prices
• Globalization does not prevent Central Banks to control inflation

TAF acutions to increase to 75B from 50B.  Arrangement with ECB rises by 20 billion.  Swiss National Bank rises by 6 billion.  Cites continued Liquidity pressures in the market. 

Of course they all seem important but the Fed decision this time seems more important.  I think the Fed will do 100 Basis points as per the concensus.  They may hesitate due to the effect it may have on the US dollar ,but if they have not been concerned about the dollar before, why change now (it does not mean it is right but that is their agenda).  The Fed will see that keeping the rate low

... and will provide liquidity if necessary.

The addition of the funds is in an attempt to help the mortgage and credit markets and liquify the markets.  The stock markets are getting a bid as is the dollar. 

Below is the Statement from the Fed.