FOMC/Battle Royale

With respect to quantitative easing, the FOMC decided to sit on their
hands and let the purchase plan of $1.25 trillion MBS, agency debt of
$200b and longer term treasuries of $300b stand as is and will continue
the programs over the next few months. As a result, bond yields have
busted out to the upside and the 10 yr yield is at the highest level
since late Nov. The Battle Royale b/w Big Ben and the Mr. Market has
been taken to a new level. The text on the economy acknowledged the
slowing pace of deterioration as household spending has shown signs of
stabilizing and the outlook has somewhat improved from the March
timeframe but “economic activity is likely to remain weak for a time.”
The talk on inflation was about identical to the March statement in that
they expect inflation to persist for a time “below rates that best
foster economic growth and price stability in the longer term” in
contrast to recent market messages.

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