Fed keeps rate unchanged and QE unchanged

Vote is  unanimous

Household spending increases. Recovery has been insufficient to reduce jobless.  $600 billion through June.

Release Date: January 26, 2011

For immediate release

Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions (vs “insufficient to bring down unemployment”) . Growth in household spending picked up late last year (vs “is increasing at a moderate pace”), but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak (SAME). Employers remain reluctant to add to payrolls (same as last month). The housing sector continues to be depressed (SAME). Although commodity prices have risen (THIS IS ADDED), longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward (..the rest is the same)

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. (This paragraph is unchanged)

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability (this paragraph is the same).

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period (the same).

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate (the same).

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen. (Hoenig is no longer a voting member so there was no dissenting vote this time).

Bobbys Corner-Open Market-Jan.26.2011

Good Morning:

The Euro gained in overnight trading as optimism grows that the EU will contain the debt crisis as the economy recovers within the region.
Last night’s State of the Union address by President Obama was well received.  The President called for a partial freeze on government spending as part of his plan to quell the out of control US budget deficit.
Executive and economists at the World Economic Forum in Davos, Switzerland commented that the measures spelled out in the President’s State of the Union is not enough to seriously cut the deficit.  Not being able to control the deficit is one of the biggest risks for the global recovery.

At 2:15 PM this afternoon the FOMC will make an announcement regarding interst rates and QE programs.

Equity markets are higher-as are US Futures.

Oil:$86.84                                             Gold:$1333.40

The FOMC Statement: Comparing November Statement to what the Fed is looking at now

Below find the November FOMC statement along with my comments on how last month compares to this month. What is important to note is last months meeting was on November 3rd and was 2 days before the Unemployment report on November 5th which showed strong job growth.  However, that strength was reversed when in December the Unemployment report was surprisingly weak.  On the demand side, since November 3rd, Retail Sales have surprised to the upside twice but Durable Goods – a measure of capital investment – showed weakness.  Housing remains weak yet interest rates soared in the last month which is not likely to help housing.  Plus banks have restarted the foreclosure process after putting the process on hold for a period of review and retooling of the process.  CPI and PPI are going in opposite directions. 

The Fed has the potential to discount the Retail Sales as being on again/off again consumer behavior.  With 9.8% unemployment they will likely raise an eyebrow to such strength in spending. 

However,  there remains a good degree of stimulus from the Fed in the economy and add to it the proposed fiscal stimulus and this would argue for staying the course this month without stirring the pot via a change in wording.  This will include the provision that the Fed could increase or decrease the QE program if financial conditions change. 

Below is the last statement with my comments in blue. 

Release Date: November 3, 2010

For immediate release
Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually (THIS IS PICKING UP AS EVIDENT FROM 2 STRAIGHT RISES IN RETAIL SALES), but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit (SPENDING IS PICKING UP DESPITE THIS STILL BEING TRUE). Business spending on equipment and software is rising, though less rapidly than earlier in the year (DURABLE GOODS ORDERS FELL LARGER THAN EXPECTATIONS WITH NON DEFENSE CAPITAL GOODS EXCLUDING AIRCRAFT FELL 4.5% VS +1.9% IN SEPTEMBER), while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls (UNEMPLOYMENT RATE RISES UNEXPECTEDLY TO 9.8% AND NFP RISES BY LESS THAN EXPECTED 39K.  INITIAL CLAIMS 421K VS 437K IN EARLY NOVEMBER ) . Housing starts continue to be depressed (STILL WEAK.  HOUSING STARTS MUCH WEAKER IN OCTOBER – 519K VS 610K ORIGINALLY REPORTED). Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters (PPI INFLATION STRONG, CPI STILL CONTAINED, CRB INDEX HIGHER, BOND YIELDS ARE RISING/SOARING.  NO INFLATION?).

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability (WITH MIXED SIGNALS FROM EMPLOYMENT AND CONSUMER/BUSINESS SPENDING, IT IS HARD TO THINK THE FED WILL NOT HAVE A MEMBERS ON BOTH SIDES OF THE FENCE (OR ON THE FENCE).   PLUS FISCAL STIMULUS IS ANOTHER NEW ADDITION TO THE MONETARY POLICY STIMULUS OVER THE LAST MONTH. 

AS A RESULT, IT WOULD SEEM PRUDENT FOR THE FED TO NOT MAKE ANY CHANGES TO THE QE2 PROGRAM ENACTED LAST MONTH, BUT IT WOULD ALSO SEEM PRUDENT FOR THE FED TO MAINTAIN AN OPEN WINDOW TO INCREASE OR DECREASE THE PROGRAM GIVEN FINANCIAL DEVELOPMENTS).

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

NY Opening Forex Commentary: FOMC decision today

NY Opening Forex Commentary:US Election and FOMC to dominate

The EURUSD has resistance at the 1.4004 to 1.4010 level.  Support at the 1.3943 level. The pair was propelled higher on the back of better PMI data today. With the US focused on QE and the ECB looking to keep rates where they are, the bias remains positive. 

The GBPUSD has suffered after the worse than expected PMI Construction.  Support comes in at 1.5951.  The 100 hour MA is approaching that level as well. On the topside staying below the 1.6005-07 level should be resistance.

USDJPY squeezed higher but ran against resistance at the 100 hour MA at 80.92 level. The 38.2% of the move down from the October 27th high comes in at the 80.91 level.  A move above targets 81.12.  Belwo 80.84 is close support but key support for the pair.

AUDUSD moved higher after a surprise increase in rates by the Reserve Bank of Australia to 4.75 from 4.5%.  The pair moved above parity to a new high of 1.0011 but found profit takers. A break higher targets 1.0070. Support comes in at 0.9962 and 0.9943.

We do have a webinar today at 4PM ET.  To register go to http://forex.fxdd.com/92814/misc/fxdd-webinar-tuesday-nov-2nd-2010

Bobbys Corner-Open Market-Sept.22.2010

Good Morning:

The USD dropped like a stone in overnight trading as speculation that the Fed’s continued easing of monetary policy will lower demand for the greenback, and other USD based assets.  The FOMC statement also left the markets with the increased likelihood that the Fed may ease more in the future to help spur the ailing US economy.  The FOMC statement also commented that inflation will stay in check for the time being-but is something that they have their eye on.  The Fed also stated that it may resume their debt purchase program-thus adding more cash to the economy.
The Euro gained as Portugal, Spanish and Irish bond sales went better than expected.

Asian equity markets were higher, and Europe is lower at this time.  US Futures are lower at this time.
Gold rose to a new record-and Oil rose to over $75/bar.

Oil:$75.49                                  Gold:$1295.10  

HAVE A GREAT DAY & GOOD LUCK

FOMC Statement Due at 2:15AM

Bobbys Corner-Open Market-Sept.20.2010

Good Morning:

The USD continued to stay weak as we start a new trading week.
Today-we have US data on confidence among US home-builders.  Estimates that the index will stay at a 17 month low is giving markets participants renewed evidence that the US economic recovery continues to stumble.
The USD also lost ground as investors speculate that after tomorrow’s FOMC meeting the Fed will be looking for further ways to keep interest rates low.  As the economy continues to move forward at an anemic pace-the Fed will need to continue with it’s present policy of keeping borrowing costs low, along with additional measures to spur on the economic recovery.

Equity markets were higher (Tokyo closed last night for elders day) .  US Futures are also pointing to a higher opening this morning.
Gold rallied to a new record high, and cotton reached a 15 year high.

Oil:$73.59                                               Gold:$1282.20

HAVE A GREAT DAY & GOOD LUCK

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