The Federal Open Market Committee meeting will be held today
with a decision due out at about 14:15ET. The surprise factor ahead
of the meeting is high. As of this posting, the fed funds futures
market shows an implied probability of 93% that the FOMC will hold
the fed funds rate steady at 2.00%. Accordingly, a decision to move
the fed funds rate up, or down, would be a huge surprise that would
prompt an outsized response. The market's handicapping of this FOMC
meeting, however, is correct in our estimation. With inflation
pressures evident but the economy and financial markets still
unsettled, the FOMC isn't going to make a move at this juncture.
The expected inaction doesn't mean the market won't be interested
in the meeting's outcome. On the contrary, interest will be as high
as ever because of the uncertainty surrounding the wording of the
policy directive... You can check out the rest of our preview
The Federal Open Market Committee meeting will be held Tuesday,
August 5. The surprise factor ahead of the meeting is high.
As of this posting, the fed funds futures market shows an
implied probability of 92% that the FOMC will hold the fed funds
rate steady at 2.00%. Accordingly, a decision to move the fed funds
rate up, or down, would be a huge surprise that would prompt an
outsized response.
The market's handicapping of this FOMC meeting, however, is
correct in our estimation.
With inflation pressures evident but the economy and financial
markets still unsettled, the FOMC isn't going to make a move at
this juncture.
The expected inaction doesn't mean the market won't be
interested in the meeting's outcome. On the contrary, interest will
be as high as ever because of the uncertainty surrounding the
wording of the policy directive.
Our sense of things is that the directive will communicate the
overriding message that the Fed is going to remain in a
wait-and-see mode as it aims to assess further incoming data on
inflation and economic activity, and continues to monitor the
functioning of the financial markets.
Reading between the lines, though, we think there is increased
potential that the market will perceive a comforting message that
the Fed won't be hiking interest rates anytime soon.
Although recent inflation reports have shown consumer inflation
on the cusp of being unacceptable, and should all but ensure a
dissenting vote from Dallas Fed President Fisher and perhaps
Philadelphia Fed President Plosser as well, the FOMC will recognize
that the recent drop in commodity prices, signs of further
deterioration in the labor market, the depressed state of the
housing sector, and evidence pointing to a slowing global economy
have afforded it some added time when contemplating the timing of
an interest rate hike.
Throw in the understanding, too, that the presidential election
is drawing closer and a rate hike in the near-term seems highly
unlikely.
This dovish perspective should be supportive for the stock
market since it has been caught up with recent (and trailing)
inflation data and has been unnerved by the idea that the FOMC will
raise rates sooner rather than later.
For say 10 year on out the market(not day to day) will raise the
rates for them. when you see that happening-----------Game
over IMO! USG is becoming a very weak credit!
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Title: FED Preview FOMC Preview -
Posted by powerchord on 5th of Aug 2008 at 12:25 pm
The Federal Open Market Committee meeting will be held today with a decision due out at about 14:15ET. The surprise factor ahead of the meeting is high. As of this posting, the fed funds futures market shows an implied probability of 93% that the FOMC will hold the fed funds rate steady at 2.00%. Accordingly, a decision to move the fed funds rate up, or down, would be a huge surprise that would prompt an outsized response. The market's handicapping of this FOMC meeting, however, is correct in our estimation. With inflation pressures evident but the economy and financial markets still unsettled, the FOMC isn't going to make a move at this juncture. The expected inaction doesn't mean the market won't be interested in the meeting's outcome. On the contrary, interest will be as high as ever because of the uncertainty surrounding the wording of the policy directive... You can check out the rest of our preview
New in the Research Section: FOMC
FOMC Preview
The Federal Open Market Committee meeting will be held Tuesday, August 5. The surprise factor ahead of the meeting is high.
As of this posting, the fed funds futures market shows an implied probability of 92% that the FOMC will hold the fed funds rate steady at 2.00%. Accordingly, a decision to move the fed funds rate up, or down, would be a huge surprise that would prompt an outsized response.
The market's handicapping of this FOMC meeting, however, is correct in our estimation.
With inflation pressures evident but the economy and financial markets still unsettled, the FOMC isn't going to make a move at this juncture.
The expected inaction doesn't mean the market won't be interested in the meeting's outcome. On the contrary, interest will be as high as ever because of the uncertainty surrounding the wording of the policy directive.
Our sense of things is that the directive will communicate the overriding message that the Fed is going to remain in a wait-and-see mode as it aims to assess further incoming data on inflation and economic activity, and continues to monitor the functioning of the financial markets.
Reading between the lines, though, we think there is increased potential that the market will perceive a comforting message that the Fed won't be hiking interest rates anytime soon.
Although recent inflation reports have shown consumer inflation on the cusp of being unacceptable, and should all but ensure a dissenting vote from Dallas Fed President Fisher and perhaps Philadelphia Fed President Plosser as well, the FOMC will recognize that the recent drop in commodity prices, signs of further deterioration in the labor market, the depressed state of the housing sector, and evidence pointing to a slowing global economy have afforded it some added time when contemplating the timing of an interest rate hike.
Throw in the understanding, too, that the presidential election is drawing closer and a rate hike in the near-term seems highly unlikely.
This dovish perspective should be supportive for the stock market since it has been caught up with recent (and trailing) inflation data and has been unnerved by the idea that the FOMC will raise rates sooner rather than later.
-- Patrick J. O'Hare, Briefing.com
powercord
Posted by drorlando on 5th of Aug 2008 at 12:33 pm
Unfortunately he is right, great post though. With Inflation pressures they need to raise rates, but will they with an election year? Politics!
For say 10 year on
Posted by rafe on 5th of Aug 2008 at 01:46 pm
For say 10 year on out the market(not day to day) will raise the rates for them. when you see that happening-----------Game over IMO! USG is becoming a very weak credit!