FOMC Meeting
-
FOMC Preview: Will the Fed Continue its $85B/Month Bond-Buying Program?
Investors will be looking to the Federal Reserve Wednesday for clues about how long it might continue its bond-buying program aimed at pushing interest rates down.
The Federal Open Market Committee is expected to release a policy statement at 2:15 p.m. Wednesday, the second day of its two-day meeting.
In keeping with a practice it began last January, the first meeting of the new year will highlight the FOMC's long-term goals and monetary policy.
The Central Bank likely will reiterate the goal it has maintained all of last year: boosting the stagnant U.S. economy.
The Fed's first meeting of 2013 comes after an extraordinarily busy year, capped by two key moves in December.That's when the Fed said it would continue spending $85 billion a month on bond purchases to keep interest rates low. At the same time, the Fed set unemployment and inflation "thresholds" instead of a date when the central bank expected to be able to raise interest rates.
-
FOMC Meeting: What the Fed Policy Changes Mean For You
The Federal Open Market Committee (FOMC) meeting ended yesterday (Wednesday) with two important changes to Fed monetary policy.
First, the central bank said it would increase the amount of quantitative easing by replacing Operation Twist, which ends Dec. 31, with outright purchases of long-dated Treasury bonds.
Under Operation Twist, every month the Fed sold $45 billion in short-term Treasury bonds and notes and bought $45 billion of long-term Treasury bonds in an effort to keep long-term interest rates low.
Because the Fed funded its purchase of long-term bonds with the sale of short-term bonds and notes, no new money was created.
However, outright purchases of long-term bonds will create new money-$45 billion every month-and, by concentrating its buying at the long end of the yield curve, the Fed should be able to keep long-term interest rates low.
The Fed also said it will continue to purchase $40 billion of mortgage-backed securities each month, creating a total of $85 billion in new money from these operations monthly.
That means QE4 is here.
Starting in January, the Fed will be more than doubling the amount of money it is pumping into the economy. Happy New Year!
Second, the Fed set unemployment and inflation "thresholds," instead of setting a date for when the central bank expects to be able to raise interest rates. What this means is that the Fed will not raise interest rates unless unemployment is 6.5% or less or inflation is more than 2.5%.
By setting thresholds where monetary policy might change, the Fed is attempting to improve its communications with the public.
To continue reading, please click here... -
Today's FOMC Meeting Ends with Major Change
After today's Federal Open Market Committee (FOMC) meeting, the Fed announced it would expand the third round of its bond buying with fresh stimulus, replacing the soon to expire Operation Twist, set to end Dec. 31.
And in an additional unprecedented move from the central bank, interest rate decisions will now be tied to the unemployment rate and inflation.
About a half hour into the release, the Dow Jones Industrial Average staged a near 65-point rally - but then lost that gain and ended down nearly 3 points at 13,245.45.
Here's a breakdown of the FOMC meeting outcome.
Today's FOMC Meeting: QE4
As expected, the FOMC meeting ended with a replacement for Operation Twist, the expiring program introduced in 2011 of swapping short-term Treasuries for longer dated ones. The goal of Operation Twist was to lower long-term interest rates to stimulate the U.S. economy.
The new asset purchase program is an extended arm of the Fed's familiar quantitative easing programs, and has thus been dubbed QE4.
Now with QE3 and QE4 together, the Fed will purchase a whopping $85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period.
The buying spree will remain intact until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% for two years out.
The Fed also left interest rates at rock-bottom historic lows near zero, as was also expected.
While these moves were widely expected, what wasn't expected was the Fed's forward-looking guidance.
To continue reading, please click here... -
This Week's FOMC Meeting: Why to Expect More Stimulus
Investors should expect welcome news from the U.S. Federal Reserve Wednesday at the end of this week's two-day FOMC meeting.
As central bankers gathered Tuesday for the last policy meeting of the year, expectations were high that Fed Chief Ben Bernanke and his cohorts will announce a large scale asset purchase plan to replace the soon-to-end Operation Twist, introduced in September 2011.
The Fed hopes additional stimulus will finally boost growth and the employment level. With the current unemployment level at an elevated 7.7% -- a number that economists say will be revised higher in the coming weeks - the weak labor market remains a grave concern.
At recent meetings, the Fed indicated that it will continue QE3, the policy of buying $45 billion in mortgage-backed securities each month until it sees a significant and sustained improvement in the employment scene - which is unlikely to come anytime soon.
Together with Operation Twist, the two programs added some $85 billion in long-term bonds to the Fed's balance sheet each month.
The aim, the Fed said in a statement, "should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."
The central bank has also stressed it would employ its other policy tools "if the labor market does not improve substantially."
While the Fed did not elaborate on what those tools are, it maintains it still has plenty of ammo left and stands ready to pull the trigger when and if necessary.
It looks like now is the time.
To continue reading, please click here... -
What the Fed Will Do at Today's FOMC Meeting
Optimism swept over investors following the September Federal Open Market Committee (FOMC) meeting, but don't expect the same when this month's two-day Fed meeting wraps up tomorrow (Wednesday).
In fact, don't expect much of anything. No surprises and nothing new are expected.
It's widely agreed that the historic low interest rates won't be raised anytime soon, and there will be no grand announcements of any further game-changing stimulus programs like the Sept. 13 QE3 statement.
No new policy measures are forecast either, as focus has shifted to the Nov. 6 presidential election. Minutes from the meeting will be released Nov. 15, after ballots are cast.
This month's meeting will be more ho-hum and about discussions not delivery.
"The Fed has entered a holding pattern while watching for signs of a substantial improvement in the labor market," Ellen Zentner, senior U.S. economist for Nomura Securities told MarketWatch.
-
One Reason the Fed Meeting Today Might Not End in QE3
Dismal economic reports for the United States have recently made the stock market rise - not the expected reaction.
That is due to traders anticipating that a third round of quantitative easing (QE3) or a similar measure will be coming to stimulate the American economy.
Yet, despite unemployment rising in the United States and growth falling, no major economic stimulus programs along the lines of QE3 have yet been announced by Federal Reserve Chairman Ben Bernanke at any Fed meeting.
The timing of QE2 explains why.
QE2 was a program where the Federal Reserve inflated its balance sheet to purchase about $700 billion in U.S. Treasury bonds to finance the federal budget deficit. This unprecedented act was required as few other investors, either foreign or domestic, were buying U.S. Treasury bonds at the prevailing interest rates.
Without this action, the low interest rate environment promised by Bernanke until at least 2014 and imperative for the recovery of the United States economy, particularly the real estate sector, would have been untenable.
The Federal Reserve as a result became the "buyer of last resort" for U.S. Treasury bonds.
QE2 was announced by Bernanke at the Jackson Hole economic policy summit in August 2010. However, the Fed's bond buying did not start until after the mid-term elections in November 2010. QE2 ended in June 2011.
That is why QE3 has neither been announced nor initiated.
To continue reading, please click here...
-
Why the Jackson Hole Fed Meeting Will Look Familiar
U.S. Federal Reserve Chairman Ben Bernanke will take the podium this Friday at the economic policy summit in Jackson Hole, WY, as traders hang on every word hoping he'll deliver a clear signal of central bank action in 2012.
They have good reason to think the Jackson Hole Fed meeting can move markets. It was at this summit two years ago in August 2010 that Bernanke announced an economic stimulus program that came to be known as Quantitative Easing 2.
QE2 consisted of the Federal Reserve inflating its balance sheet to purchase $700 billion in U.S. Treasury bonds from November 2010 to June 2011. This was necessitated as no investors, either foreign or domestic, could be found to purchase U.S. Treasury bonds at such low interest rates.
Now, two years later, the U.S. economy has economic growth falling with unemployment rising. Consumer confidence is at record low levels. Lending institutions are processing millions of properties through various stages of foreclosure. Businesses are sitting on record levels of cash, preparing for the worst, rather than investing in job-creating plants, equipment and machinery.
Oil prices are also rising, which will have a negative impact on the U.S. economy. The more money sent overseas to pay for imported oil, the less there is to buy the goods and services that raise the level of employment in the United States.
This was how things were in 2010. Actually, things seem worse now since Standard & Poor's in August 2011 downgraded the credit rating of the United States.
In an attempt to change this gloomy outlook, the Federal Reserve is letting it be known that it will act again in a major way, like in did in August 2010.
But, like that year, no new policies will officially start until after Election 2012.
The Federal Reserve cannot be seen as doing anything that might influence voting when Americans go to the polls the first Tuesday in November. That is the way it was in 2010, and that is the way it will be this year.
To continue readng, please click here... -
Today's FOMC Meeting: We Could Wait Four More Months for Action
The U.S. Federal Reserve continued its wait-and-see stance today (Wednesday) and remained in idle mode when it said and did little at the conclusion of its two-day Federal Open Market Committee (FOMC) meeting.
The central bank decided to leave rates unchanged, reiterated it would leave rates low through at least 2014 (not extending them to 2015 as expected) and did not announce a third round of quantitative easing.
The Fed chiefs did, however, voice that should conditions warrant, they are ready to step in and take aggressive steps to bolster the U.S. economy.
PIMCO's leader Bill Gross told CNBC that "a changing in policy landscape can be expected in a month or so."
Click here to continue reading... -
Today's FOMC Meeting Too Early for Action
There is little doubt that the struggling U.S. economy could use some goosing, and the U.S. Federal Reserve is in a position to deliver a good boost.
But, a move isn't likely at the conclusion of today's (Wednesday) Federal Open Market Committee (FOMC) meeting.
While a fresh spate of data suggests new steps from the central bank are warranted, many economists warn that the economy doesn't need immediate action - especially since the prior moves from the Fed haven't been very effective.
Growth has clearly slowed and unemployment remains elevated, but the sluggish pace of the U.S. economy may not be slow enough to compel the Fed to make an impactful move today, and any Fed decisions will be pushed to later in the year.
Today's FOMC Meeting: Not Ready for QE3
The U.S. Commerce Department last week reported that the U.S. economy grew at a paltry 1.5% annual rate in the second quarter, down from 2% in the first. Plus, the Labor Department reported initial jobless claims ticked up in the latest week while the unemployment level remains at a sickly 8.2%.
Fed chief Ben Bernanke maintains that his team is prepared to take further action if unemployment stays high, but he remains vague on what action might be taken.
With the reeling recession in Europe and a slowdown in stalwart China, global growth has been severely dented and is weighing on the U.S. economy. Those factors increase the odds of a third round of quantitative easing (QE3), but the Fed may not pull the trigger Wednesday.
To continue reading, please click here...
