All eyes on Fed, though few expect big policy changes

June 24, 2009

Markets are fixated on the outcome of the Fed’s two-day meeting, with the statement due out around 2:15pm. Few expect big changes on its policy, however, so tweaks on language about the economic outlook and a possible extension of its purchase of $300 billion of Treasuries, which expires in September, would get tongues-wagging if not markets moving.

Andrew Brenner of MF Global Inc. notes that the Dow Jones Industrial Average typically moves 2.5% within 24 hours of a Fed announcement.

Here’s some of the language from statement issued at the last FOMC meeting in April.

…Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time…

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term…

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. (Emphasis mine)

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