Jim Bianco on FOMC Actions
- The Financial Times – Short View: Fed’s exit strategy
Nobody is expecting the Federal Reserve to change its target Fed funds interest rate on Wednesday. It will remain at 0.25 per cent after the federal open market committee meets. But there has been a flurry of speculation that the Fed will hint that the “exit strategy” from its loose monetary policy will come sooner than once thought. Last Friday’s payroll report for July, which showed joblessness rising slower than expected, egged this on. - Bloomberg.com – Fed May Recognize Faster Growth, Keep Rates ‘Exceptionally’ Low
Federal Reserve policy makers may today acknowledge economic growth will be faster than they anticipated, while committing to keep the benchmark interest- rate target near the lowest level on record. Central bankers gather in Washington as analysts project 2 percent growth or faster in the second half of 2009 — twice the pace the Fed forecast in June. At stake in today’s statement: delivering a message that the Fed will ensure the recovery is sustained, without stoking inflation expectations. The need to reinforce the recovery means policy makers will reiterate rates will be kept “exceptionally low” for an “extended period,” analysts said. At the same time, Chairman Ben S. Bernanke and his colleagues will likely consider ending their $300 billion Treasuries-purchase program, an emergency step taken in March to help pull down borrowing costs.
Comment
Later today the Federal Reserve board meets, and as is the ritual, the FOMC statement will be scrutinized word by word, comma by comma. However, as we noted after the last FOMC meeting, the Federal Reserve has been known to withhold some information from the statement, opting instead to release details of new programs or tweaks to old programs a day or two after the FOMC meeting.
This last occurred on June 25 (one day after the June statement) when the Federal Reserve announced extensions and modifications to various liquidity programs. At the time we asked:
Could it be…that the Federal Reserve was afraid that the “teenagers” would misinterpret its meaning? If so, does this mean that the FOMC statement is now devoid of real information?
Are we now all reduced to watching the “What’s New” page on the Federal Reserve’s website in the days following the FOMC meeting to find out what they really discussed?
To be sure, this is not a unique occurrence. Below is a quick laundry list of similar announcements which came on the heels of an FOMC statement:
- Two days after a relatively uneventful April 29 FOMC statement, the Federal Reserve announced that CMBS would be added as eligible collateral under the TALF
- One day after the March 18 FOMC statement which announced quantitative easing, the Federal Reserve announced four new categories of ABS would be added as eligible collateral under the TALF
- Two days after an uneventful January 28 FOMC statement, the Federal Reserve announced several exemptions for bank holding companies in regards to their use of new liquidity facilities
- One day following the December 11, 2007 FOMC statement, the Federal Reserve announced the creation of the Term Auction Facility (TAF).
Between January 29, 2008 and the December 16, 2008 FOMC meeting, the Federal Reserve held nine meetings, changing rates and making extraordinary moves many times in between meetings. During this period, changes to monetary policy were a regular event even outside of FOMC statements.
Our fear is that the Federal Reserve has purposely rendered the FOMC statement a non-event. They will tell the market what it wants to hear for fear that anything less will be misinterpreted.
More often than not over the past year, the juicy details of the FOMC meeting are released a day or two after the statement. We’ll be watching over the next few days to see if the same happens after this meeting.
-Jim Bianco, Bianco Research
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