FOMC

9-1 Fisher preferred to raise rates.

• DOWNSIDE GROWTH RISKS HAVE 'DIMINISHED SOMEWHAT'
• UPSIDE RISKS TO INFLATION, EXPECTATIONS HAVE RISEN
• UNCERTAINTY ABOUT INFLATION OUTLOOK REMAINS HIGH
• IT EXPECTS INFLATION TO MODERATE
• FINANCIAL MARKETS REMAIN UNDER `CONSIDERABLE STRESS'
• ACT AS NEEDED TO PROMOTE GROWTH, STABLE PRICES

The dollar is a little lower in early NY trade as the FOMC starts their two day meeting.  The expectation is for no change in rates.  However, expect more concern about inflation and increases in inflationary expectations. 

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.

PREDICTS GROWTH `MUCH WEAKER' COMPARED TO JANUARY ESTIMATE

RAISES CORE INFLATION FORECASTS TO 2.2%-2.4%, FROM 2%-2.2%

POLICY MAKERS EXPECT GROWTH `REBOUND' IN 2008 SECOND HALF

SAYS MOST MEMBERS VIEWED GROWTH RISK STILL TO `DOWNSIDE'

SAYS `MANY' OFFICIALS SAW GDP CONTRACTION IN FIRST HALF

SAW RISING RESTRAINT ON SPENDING FROM WEAKENING JOB MARKET

Official Statement from the FOMC:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

Signals a pause in rate cuts. 2 dissenters for no change.

• Federal Reserve: FED Fund rate 2,00 % 
• EASING TO DATE SHOULD PROMOTE GROWTH
• ECONOMIC ACTIVITY REMAINS WEAK
• EXPECTATION FOR INFLATION TO MODERATE
• DROPS REFERENCE TO DOWNSIDE RISKS TO GROWTH
• UNCERTAINTY ABOUT INFLATION OUTLOOK REMAINS HIGH
• FINANCIAL MARKETS REMAIN UNDER CONSIDERABLE STRESS
• CREDIT, HOUSING TO WEIGH ON GROWTH FOR A FEW QUARTERS 

The market is also expecting a change to a neutral policy.  How they will say that will be interesting given the state of the US economy.  However, the inflation is hard to explain away.  Plus the dollar weakness is an issue which will be interesting to see if they address.  

I would expect the stocks to initially do well.  However, the gains should be contained.  Expect extreme volatility.

• A CONTRACTION IN GDP LIKELY
• MOST FED OFFICIALS SEE INFLATION MODERATING LATER IN '08, '09
• FED FOUND LITTLE INDICATION HOUSING HAS BEGUN TO STABILIZE
• FED OFFICIALS HAD SOME CONCERN PRICE EXPECTATIONS MAY LOOSEN
• FED RECOGNIZED RATE POLICY ALONE CAN'T SOLVE MARKET PROBLEMS
• FED OFFICIALS JUDGED RECENT INFLATION DATA DISAPPOINTING
• FED OFFICIALS ANTICIPATED ECONOMY TO BEGIN TO RECOVER IN H2
• FISHER AND PLOSSER DISSENTED DUE TO INFLATION RISKS

Tonight Glenn Stevens, Governor of the Reserve Bank of Australia speaks at 6:00 PM to Parliament.  His comments will be important especially in light of the no change in policy at the last meeting and what was thought to be softer comments on the economy.

Also speaking tonight is the Fed's Janet Yellen at 8:00 PM.  She will be speaking on the US economy at Stanford University.

Finally, Feds' Mishkin will be speaking in NY at the Princeton Club. 

Given the magnitude of the employment report tomorrow, the comments out of the Fed officials will probably not be market moving.  Mr. Stevens testimony, however, has the potential to cause some action