The FOMC began with talk on the economy that was very similar to the April one. “The pace of economic contraction is slowing.” It followed with the caveats of constrained household spending due to job losses, lower housing wealth and tight credit and also referenced businesses cutting back on fixed investment and staffing and they believe the economy will be weak for a time. The main change came in the 2nd part when they mentioned the rise in commodity prices BUT they continue to hang their hat on the ‘output gap’ in giving them comfort that “inflation will remain subdued for some time.” The final part was identical to the April comments in saying the fed funds will be at an exceptionally low level for an extended period and maintaining their current QE plan. Traders were looking to see how the Fed was going to respond to the game of chicken with the bond market and the Fed somewhat turned their head and bonds are lower in response. Fed members can say they are not conducting the monetization of US debt as they couch it in helping the markets but its just semantics.

Peter Boockvar

Managing Director

Equity Strategist

Miller Tabak + Co.

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