With rates near zero, investors will be focusing on the Fed's statement

Posted Jan 27th 2009 6:31PM by Joseph Lazzaro
Filed under: Forecasts, Federal Reserve, Recession, Financial Crisis

With its benchmark and new, short-term interest rate already in its 0-0.25% target range, investors are expected to concentrate on the U.S. Federal Reserve's statement and any information (or clues) it may provide about both the U.S. economy and the central bank's quantitative easing policy.

Further, Fed officials are also considering a revision of the central bank's forecasts so that they include periods beyond three years, Boomberg News reported Tuesday. The Fed will release its statement Wednesday at 2:15 p.m. ET.

Economist Peter Dawson told BloggingStocks he, and probably many other economists, will be looking for any Fed commentary / analysis of its quantitative easing strategy.

"We'll pay close attention to any comments by the Fed that indicate bank lending has increased. Few Fed watchers expect lending to increase so soon into the quantitative easing, but it will be a watchword," Dawson said.

Dawson added that, barring Fed comments evaluating quantitative easing, the first signs of the quantitative policy's impact will be 1) a further easing of credit conditions, which are better than they were last fall, but are still constrained, and 2) little or no sign of deflation.

Which begs the question, with the Fed having more than doubled its balance sheet in the past year to over $2.3 trillion, should there not be concern at this juncture about rising inflation? "Not at this time. Short-term, inflation is not a concern, as wage, price, commodity, and housing cost pressures are non-existent or extremely low. The bigger risk and danger now to the economy is deflation," Dawson said. "Longer-term, when the recovery starts, inflation will pick-up. But we are not at the recovery stage yet, unfortunately."

Monetary / Economic Analysis: Economists, investors, and executives alike will parse the Fed's statement for any hints about quantitative policy, including global credit market conditions and other, major central bank actions. Regarding the latter, so far, the Bank of England and Bank of Japan have not implemented quantitative easing policies. Given the global slowdown's depth, that change may be next.

Tags: bank sector, Bernanke, credit markets, deflation, featured, Fed, federal reserve, FederalReserve, inflation, monetary policy, quantitative easing

Print this

Reader Comments (Page 1 of 1)

1-27-2009 @ 6:58PM

william lindblad said...

Inflation/Deflation - two different entities, but NOT an immediate concern. What is of concern is the "do or die" situation that currently prevails. If the Fed had any brains they would drop everything to "0". They have to work in concert with Obama and failing to do so will not enhance any possibility of turning the economy around - however remote.
The Fed has already used both barrels of their Holland & Holland elephant gun and the elephant is still charging. At this point it is better to stoop down, grab a rock and throw it. You might get lucky and avoid being trampled!

1-28-2009 @ 8:35AM

BHarrison said...

Unfortunately, The Federal "statement" will probably have as little INTEGRITY and credibility as the financial statements of many of the major corporations have had leading up to the economic debacle.

It appears that there is very little INTEGRITY and credibility in the prepresentations of our government or major corporations . . . and that is the basis for the gross lack of "faith and confidence" that is needed to stimulate investment in the corporations, the markets/funds.

It appears that Congress has, in essence, done nothing of any significance to address these problems. Could it be that they (and the major corporations) simply feel that they cannot afford to reveal the "truths" to the American people?

And with the markets being projected to decline another 10% - 20%, or more, I'm personally not going to invest in a corrupt, manipulated, and declining markets.

The "creative accounting practices" that have been used to hide and/or to dodge full disclosures, should be outlawed for the CORRUPTION and FRAUDS that these practices create and perpetuate.

We have to "hit bottom" before recovery can begin; and this can ONLY be achieved by honest, full disclosure of the financial reports of the major corporations. Congress is the pivotal party in achieving all of this by passing prucdent and reasonable regulations, implementing effective oversight via the SEC, etc.; and aggressively going after those CEOs and corporate officals who do not comply with full disclosures, good business and accounting standards, etc.

CONGRESS was the pivotal CAUSE of the economic debacle; and now they are the pivotal part of the recovery. So, what is Congress going to do, especially if they haven't done much to date to redress these problems?