Tuesday, July 12, 2011

US FOMC Minutes Press Conference - July 12, 2011

Today’s FOMC Minutes will probably not be a market mover because almost everything was covered during Bernanke’s FOMC Press Conference immediately after the rate decision on June 22, 2011. 

However, given the recent events, namely the NFP release on Friday, we could expect some renewed speculation for further Fed action, possibly even lead to QE3. But realistically speaking, considering that this Minute is for the rate decision 20 days ago, we’ll probably not see strong market volatility UNLESS there were extensive discussions on further stimulus or concerns that may add to the current risk aversion sentiment… if that’s the case, then expect to see some weakness in the USD.

Here’s a summary that I wrote 20 days ago after the FOMC Meeting, it will definitely refresh your memory on what happened on June 22, 2011.

GDP:
- 2011 GDP 2.7-2.9% (3.1-3.3% prior)
- 2012 GDP 3.3-3.7% (3.5-4.2% prior)
- 2013 GDP 3.5-4.2% (3.5-4.3% prior)
Unemployment:
- 2011 8.6-8.9% (8.4-8.7% prior)
- 2012 7.8-8.2% (7.6-7.9% prior)
- 2013 7.0-7.5% (6.8-7.2% prior) 

PCE inflation:
- 2011 2.3-2.5% (2.1-2.8% prior)
- 2012 1.5-2.0% (1.2-2.0% prior)
- 2013 1.5-2.0% (1.4-2.0% prior)

Core PCE:
- 2011 1.5-1.8% (1.3-1.6% prior)
- 2012 1.4-2.0% (1.3-1.8% % prior)
- 2013 1.4-2.0% (1.4-2.0% prior)


Here are the highlights of his Speech & Q&A Session: (Source: http://www.federalreserve.gov/newsevents/press/monetary/20110622a.htm)

Fed´s Bernanke: Expects the Japan economy to improve and gasoline prices to fall, helping improve the economic outlook in the second half of 2011...

Pace of progress on the unemployment issue remains "painfully slow"  Expects inflation to subside to a level at or below 2% in coming quarters.

Q&A:
No committment has been made on a timeframe for ending reinvestment of maturing balance sheet assets. Part of the slowdown temporary, part may be longer lasting. Has no precise read on why slower growth is persisting. Some headwinds may be stronger or longer lived than we previously thought; not all of the factors behind the slow down can be explained. Recent weakness maybe partly attributual to longer-term factors like weakness in finanical sector, balance sheet issues and housing.
 
Fed is closer to dual mandate objectives than it was last August.  There has been improvement in the labor market, but not as strong as we would like. Says has been a long-time proponent of inflation target; Inflation target would make it easier to reach inflation objectives; Nothing immiment on working toward having an inflation target. No real barrier to setting an inflation target; Need to communicate that Fed would not abandon employment target.  Every member of the committee believes the "output gap" is still quite large; Inflation expectations remain well anchored. Japan related supply disruptions are very close to being resolved - one example of progress on factors expected to lower inflation expectations.
 
`Extended period´ language is not intentionally opaque, but reiterates that it means the Fed is at least 2-3 meetings away from taking further action; Emphasizes "at least." Do not want to make a firm commitment to a fixed timeline. 

Fed has the tools to conduct further stimulus if conditions warrant: options include added asset buying, cutting interest on excess reserves, or giving guidance on the balance sheet or fixing a date for "extended period." Factors slowing down the housing recovery present very difficult challenges. Fed is continuing several programs and policies to help support the housing market.  There is substantial uncertainty on the length of the slowdown, could consider making more purchases of securities if needed.


Europeans understand failure to resolve Greek situation poses risk to global financial system. Following Greek situation closely. 
 
For the actual recording of the press conference, visit (http://www.federalreserve.gov/monetarypolicy/fomcpresconf20110622.htm)

Thanks,