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March 27, 2006
FOMC tomorrow
FIrst a couple of links to get you warmed up... Louis Uchitelle writes for the Times, summarizing the lay of the land. Greg Ip for the WSJ is on top of things as usual. Reuters has bullet points suitable for your macro class.
From Greg Ip's article:
But as to what happens after [Tuesday's meeting], it's still largely guesswork. The market puts high odds on another boost to 5%, but Mr. Bernanke said nothing to shade those odds. Indeed, in his five major appearances as chairman, he has either steered away from current commentary, or presented such a balanced view that markets have barely moved.
As chairman, concluded Bank of America economist Peter Kretzmer, "Bernanke may be no easier to decipher than his predecessor." The words may be clearer, but clarity does not equal candor.
Yet Mr. Bernanke's refusal to guide the markets may be temporary. Whatever his personal preference on interest rates, Mr. Bernanke has a powerful reason to keep them to himself for a little longer. To signal how the FOMC should vote without yet leading a meeting could strike the 18 other members as presumptuous and strain relations with them early in his term. (Two of them -- Vice Chairman Roger Ferguson and Philadelphia Fed President Anthony Santomero -- are resigning soon, and as is customary for FOMC members, will not attend their last meeting; an alternate will serve in Mr. Santomero's place. Their successors have yet to be named.)
Very true. Sorry to disappoint you, but I don't see any big revelations coming tomorrow. What you see will probably be consistent with the notion of at least one more rate increase... or not. I'd say another increase at the May meeting is quite likely unless we learn next month that 1st quarter GDP tanked (which I don't think is very likely). Past that, as Dave Altig says, the race is "wide open."
But as for tomorrow, even Greg Ip is willing to hedge his bets a little...
Brian Sack used to work at the Fed and co-wrote, with Mr. Bernanke and another staffer, a study that established the benefits of the Fed's guidance. Now at the private forecasting firm Macroeconomic Advisers, Mr. Sack says: "The markets have a thirst for direction, and it can't always be satisfied. But at times when Bernanke has a different view than what seems priced into the market, he will not shy away from conveying that view, and on those occasions, he will certainly move markets."
Who knows? It could happen Tuesday.
That's probably a good way to leave things until tomorrow.
Posted by William Polley at March 27, 2006 11:04 AM
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