Henry Liu
Former FPA Special Consultant
- Messages
- 473
The real market mover will probably be the accompanied statement, where Bernanke is expected to mention his plan to control the exapnding balance sheet which sits at about 3 trillion USD without risking further inflation. The Fed will probably propose to create a 600 billion Treasury Buying Plan to boost asset prices and convince Americans that the worst part of the economic downfall is over. The idea is to liquidate almost 1.4 trillion in troubled assets (bonds) on the balance sheet and sell them to private equity buyers and using the proceeds to buy longer dated treasuries. Ultimately, the Fed wants to provide a “Bull Flattener” in which long term and short term rates balance to make loans less expensive.
The plan provides breathing room for Fiscal Policy makers to avoid structural restraints while the fed limits the economic fallout from budget cuts.
Critics say that it can’t be assumed that a cut in long rates would help create a demand for mortgages; the housing market is still very weak. The idea hasn’t been fully accepted by some because of the thought that long rates will continue to rise while short rates won’t move. It also can’t be assumed that the toxic debt being sold off will generate proceeds.
We should expect a reiteration of recent rhetoric from Bernanke’s speech in March 2. We should also expect little change with the phrase “…low levels of the federal funds rate for an extended period”, and in all likelihood, it will probably remain in this FOMC statement… we will probably not get any persistent market reaction…
However, if Bernanke were to surprise the market and discuss possible exit strategies or phasing out QE2, market will rush to buy USD, as it is a sentiment shared by many Fed officials (Dudley, Fisher, and Evans); on the other hand, if Bernanke were to concentrate on the negative and the sluggishness in market recovery, we’ll probably see USD under a bit of selling pressure.
The most likely scenario will be a limited market reaction today, and of course, unless you’ve traded this release before, I’d recommend staying out. This is a very advanced news event that is high impact enough to change market trend, and therefore important to every Forex trader…
So if you have never traded this release, just be present and watch market reaction while listening to your news wire service or Bloomberg TV and try to learn as much as you can, I’m sure you’ll thank me later.
Historical Data & Chart For FOMC Rate Decision
Thanks,
The plan provides breathing room for Fiscal Policy makers to avoid structural restraints while the fed limits the economic fallout from budget cuts.
Critics say that it can’t be assumed that a cut in long rates would help create a demand for mortgages; the housing market is still very weak. The idea hasn’t been fully accepted by some because of the thought that long rates will continue to rise while short rates won’t move. It also can’t be assumed that the toxic debt being sold off will generate proceeds.
We should expect a reiteration of recent rhetoric from Bernanke’s speech in March 2. We should also expect little change with the phrase “…low levels of the federal funds rate for an extended period”, and in all likelihood, it will probably remain in this FOMC statement… we will probably not get any persistent market reaction…
However, if Bernanke were to surprise the market and discuss possible exit strategies or phasing out QE2, market will rush to buy USD, as it is a sentiment shared by many Fed officials (Dudley, Fisher, and Evans); on the other hand, if Bernanke were to concentrate on the negative and the sluggishness in market recovery, we’ll probably see USD under a bit of selling pressure.
The most likely scenario will be a limited market reaction today, and of course, unless you’ve traded this release before, I’d recommend staying out. This is a very advanced news event that is high impact enough to change market trend, and therefore important to every Forex trader…
So if you have never traded this release, just be present and watch market reaction while listening to your news wire service or Bloomberg TV and try to learn as much as you can, I’m sure you’ll thank me later.
Historical Data & Chart For FOMC Rate Decision
Thanks,
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