The Wild Week That Drove the Market by Tim McLaughlin
On Tuesday, the FOMC released their policy statement that, in a nutshell, said the economy was improving and gave consensus (accurate or not) to the market that any anticipation of QE3 is off the table for now.
Notable takeaways:
– Unemployment declined “notably” (last time stayed elevated)
– Growth “moderate” (last time “modest”). In fed-speak moderate > modest.
– Unemployment rate declining “gradually” (last time “only gradually”)
– Business investment “has continued to advance” (last time “slowed”)
– Strains in global financial markets have “eased”
The statement also said that “strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook.”
Inflation “has been subdued in recent months although prices of crude oil and gasoline have increased lately,” the Fed said. The increase in oil will “push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.”
The Fed left unchanged its statement that economic conditions would probably warrant “exceptionally low” interest rates at least through late 2014. The central bank in December 2008 lowered its target overnight interest rate to a range of zero to 0.25 percent.
Bottom line: probably an upgrade of sorts to their forecast given the improved data = lower odds of QE3 than the January statement. Most now don’t expect QE3 barring significant weakening in the outlook. “Operation Twist” ends in June, and most now expect no extended actions thereafter
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Yesterday we also learned that Initial Jobless Claims for last week fell by 14,000 to 351,000, more than projected and down to the lowest number since April of 2008 (almost 4 years). This caps off the best six-month streak of job growth since 2006, as the employment rate continues to decline and Non-Farm payroll continues to improve.
