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FOMC Meeting Expectations

06/21/2011
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:
  • 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."
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.
 
Figure 1.1 Consumer Price Index (CPI), June 2008 to June 2011

Source:  Bloomberg

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