Today's FOMC Meeting
1. CHANGE IN LANGUAGE - TONE
From the June 23rd meeting, 1st paragraph: "Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing"
· EXPECT A MILD SHIFT IN LANGUAGE TO ACKNOWLEDGE "THE SLOWING RECOVERY" AND REVERSE THE JUNE 23RD LANGUAGE
2. ADDING LANGUAGE - INTENT
From the June 23rd meeting, 1st paragraph: "Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time."
· EXPECT DETAILED LANGUAGE TO IDENTIFY WHAT ECONOMIC CONDITIONS WILL MOTIVATE THE FOMC TO BEGIN QE2 - SIMILAR TO THE PARAGRAPH ABOVE FROM JUNE 23RD
3. POLICY TOOLS - MORE BARK THAN BITE
· DO NOT EXPECT ANY MAJOR ASSET PURCHASES
· POSSIBLE REINVESTMENT OF PAYMENTS FROM MORTGAGE BACKED SECURITIES INTO U.S. TREASURIES
· POSSIBLE REDUCTION IN THE BANK RESERVE DEPOSIT RATE FROM 0.25% CURRENTLY
· SUGGEST RATES WILL REMAIN HISTORICALLY LOW UNTIL "xyz economic conditions improves"
CONCLUSION: TODAY'S FOMC MEETING IS THE "BARK" THE SEPTEMBER 21 FOMC MEETING COULD BE "THE BITE."