What will the FOMC say?/Europe

As we await the FOMC statement, overnight the BoJ sat on their hands and did not add more QE to the increase announced last month but the yen is still falling to the lowest level since April ’11. The Fed will likely acknowledge the better economic data points but I’m most interested in seeing the Fed commentary on inflation as gasoline prices are up 13% since the last meeting and implied inflation expectations 5 yr out are up 37 bps and 10 yrs out up 18 bps. They will likely though keep their ‘short position’ in commodities by saying they expect energy prices in particular to fall. Meanwhile, the 2 yr note yield is at the highest since Aug, albeit at a still measly 33 bps. Investor confidence in the German economy 6 months out (ZEW) rose to 22.3 from 5.4 and vs expectations of 10 to the best since June ’10 but current conditions fell unexpectedly. The DAX is up for a 5th day to the highest since Aug. Spain came to an agreement with the EU, raising their ’12 budget deficit goal to 5.3% from 4.4% but below the 5.8% that Spain wanted. Yields in Spain are higher in response.

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