April 26. No drama in FOMC meeting

–There weren’t any surprises in yesterday’s FOMC. Curve edged steeper. Tens closed at 1.99%. Stocks were buoyed during the press conference when BB said the Fed could act if needed. The low in TYM occurred after the economic projections where several members moved forward the time of initial tightening, from 2015 and 2016 to 2014. In January, 5 saw tightening in 2015, this time 7 did. But interest rate futures bounced back and closed near highs.
–The Fed members aren’t great forecasters, and their estimates of growth, unemp and inflation reveal institutional bias. For example, the rate of GDP growth declined throughout 2011, but is forecast to go higher. The unemp rate fell, and THAT trend is expected to continue down the exact same path. But the inflation rate doubled from the beginning to end of 2011, and is projected to come down! Right. Growth higher, employment better, but inflation fades. In a world with more uncertainties than usual, in Europe, Iran, N Korea, and China (where the CEO of CAT confirmed a slowdown in construction), all forecasts are subject to change. My personal forecast is that more QE will be front and center by June, notwithstanding BB’s discussion about “stocks and flows” and the idea that the end of twist won’t have much impact. In fact he said (and I am paraphrasing) that the cessation of other QE’s didn’t have negative impact on rates. Really?? Then the easy follow-up question is why then, did you engage in more? And the answer is that RATES weren’t negatively impacted, EQUITIES were. THAT’S why we had to continue…
–News today includes Jobless Claims expected 375k from 386 (important because this data has recently popped back up close to 400k again). Also Chicago Fed Nat’l Activity which was -0.09 last.

Posted on April 26, 2012 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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