The Fed statement at 2:15 pm EST

by **ADMIN** Tue Dec 13, 2011 12:28 pm

The Fed is expected to take no action at its meeting Tuesday, but it should continue to reassure markets that it could ease further if needed.

The Fed statement at 2:15 pm EST is the big event of the day, but investors are also watching November`s retail sales to see if they were as perky as retailers made them seem after Black Friday weekend.

Fed watchers also say the Fed could lay the ground work for an announcement in January of a new, more transparent communications policy. It also may give a nod to the slightly improving economy.

"I think this is going to be the quiet meeting," said Pierpont Securities chief economist Stephen Stanley. "They`re clearly looking at a lot but all the smoke signals coming out of Washington suggest they are shooting more for January than December for this new communications strategy they`ve been working on."

Stanley said it makes sense the Fed would announce the communications strategy in January since Fed Chairman Ben Bernanke is scheduled to hold a press briefing, and the Fed will also issue a new economic forecast.

Under its new strategy, the Fed, for instance, could emphasize that it expects to keep the Fed funds rate at zero for the next two years and add language that says what it would consider in order to change that.

Stanley said he expects the Fed to show it is maintaining its easing stance, but he personally sees less chance that it will undertake another quantitative easing program because of the improving US data.

However, he notes the Fed is also wary of Europe`s sovereign debt crisis, which continues to hang over the markets.

Monday`s markets reacted negatively to the outcome of the EU summit last week and the lack of commitment by the European Central Bank to buy more sovereign debt. The Dow fell 161 points to 12,022 on Monday, a 1.3% decline, and the euro slid 1.5% to a level below 1.32.

Morgan Stanley`s Jim Caron expects the Fed eventually will announce another round of quantitative easing, which would involve the purchase of mortgage securities sometime at the end of the first quarter or beginning of the second quarter.

Caron also said its next step will be to change the communications strategy, which it believes could help it affect market behavior. "The change would be an attempt to reflate asset prices while reducing risk premiums in order do achieve easier financial conditions," he notes.

"Effectively, what they`re having is diminishing returns in terms of quantitative easing. You had QE1 that affected asset prices; QE2 prevented deflation, and you now have "Operation Twist," and the jury is still out," he said. The "QE" or quantitative easing programs involved the Fed`s purchase of assets, which increased the size of its balance sheet. "Operation Twist" is a program under which the Fed is purchasing longer duration Treasurys and selling the short end, without any change in the size of its balance sheet.

Link to Market Outlook Article

by Guest Tue Dec 13, 2011 1:12 pm

Hope this is RV related...we all do.

The Fed statement at 2:15 pm EST

The Fed statement at 2:15 pm EST

Re: The Fed statement at 2:15 pm EST