FOMC Meeting Expectations
On Wednesday, June 22, at 12:30 p.m. ET, the Federal Open Market Committee releases its statement following the conclusion of its fourth scheduled meeting of 2011. Fed Chairman Ben Bernanke will hold a press briefing afterward at 2:15 p.m. ET. Four FOMC meetings remain for the year: August 9, September 20, November 2, and December 13. The November 2 meeting will be followed by another Bernanke press briefing. Review FOMC statements from the previous two meetings (March 15 and April 27).
My expectations for the June meeting:
Commentary: Last year the market benefited from the Fed's second round of quantitative easing (QE2). This year, as the market searches for a second half "hero," continued robust corporate earnings will be critical to returning the market higher. Monetary policy that continues to be historically easy will serve as a tailwind for corporations. I cannot emphasize enough the importance of the upcoming July earnings season.
- Growth has slowed since the April meeting while inflation (Figure 1.1) has ticked modestly higher, thereby forcing the FOMC into "inaction"
- Expect language regarding the disappointing pace of the economic recovery, possibly citing the manufacturing slowdown
- Expect the Fed to maintain the size of its balance sheet at $2.8 trillion
- Expect the Fed to complete its $600 billion bond purchase plan and not embark on any new purchases (QE3)
- Expect the Fed to continue to reinvest proceeds from maturing assets
- Expect continued language suggesting rates will remain low for an extended period of time
- If there were to be a surprise, I would expect it to be FOMC language suggesting that "if the economic slowdown continues to deteriorate, it DOES HAVE further unconventional tools at its disposal to stimulate growth."
Figure 1.1 Consumer Price Index (CPI), June 2008 to June 2011
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