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

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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.

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Last updated: November 14, 2009: 01:10 PM

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