2012 Economic Calendar
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FOMC Meeting Announcement
Released On 3/13/2012 2:15:00 PM
PriorConsensusActual
Federal Funds Rate - Target Level0 to 0.25 %0 to 0.25 %0 to 0.25 %

Highlights
The Fed is on hold for policy. However, the Fed gave the economy a mild upgrade, suggesting that additional ease is not likely.

The Fed left policy rates unchanged with the fed funds target remaining at a range of zero to 0.25 percent. The statement retained language that the fed funds rate is likely to remain exceptionally low at least through late 2014. The vote for the statement was 9 to 1. Richmond Fed President Jeffrey M. Lacker dissented with the minutes noting that he "does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014."

Additionally, the Fed retained its Maturity Extension Program or "Operation Twist" to lower long-term interest rates. The Fed also is continuing to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and is rolling over maturing Treasury securities at auction.

The Fed did take note that the economy is gradually gaining strength with key characterizing being that the economy has been "expanding moderately" and that labor conditions have improved.

"Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable."

The Fed still sees downside risks from global financial markets (read European sovereign debt) though there has been improvement. The Fed sees the recent run up in oil and gasoline prices as temporary and the subsequent inflation will be at or below what is consistent with its dual mandate.

Overall, there were no surprises except for the remaining traders who expected some hint of QE3 or sterilized QE. But with today's strong retail sales report, all but a few pipe smokers should have discounted that possibility.

With the economy gaining momentum, the odds are growing that the Fed is on hold for the rest of the year even as Operation Twist is concluding. The Fed traditionally does not like to make any bold policy changes just before a presidential election (regardless of the party in power). One could argue that Operation Twist could be extended between now and November but not much else is likely to happen.

Market Consensus before announcement
The FOMC announcement at 2:15 p.m. ET for the March 13 FOMC policy meeting is expected to leave rates unchanged. Market focus will be on comments on changes in the relative strength of the economy, changes in inflation worries, and whether the Fed is willing to undertake new options. Market expectations likely were raised by the March 7 Wall Street Journal article (unnamed sources) stating that the Fed is considering "sterilized" buying of long-term bonds-shifting the average maturity of the Fed's holdings and offsetting the longer-term purchases with sales elsewhere on the balance sheet. But several District presidents oppose QE3 and likely will raise questions about this new idea. Key questions likely would be whether the Fed will lose money on these transactions as interest rates rise. And if the Fed will lose money, will that impede how quickly the Fed can unwind its balance sheet as the economy eventually heats up. And even will potential Fed losses have an impact on the federal deficit (annual Fed profits are handed over to the Treasury). The cost/benefit analysis for the alleged new Fed option may not play out well.

Definition
The Federal Open Market Committee (FOMC) is the policy-making arm of the Federal Reserve. It determines short-term interest rates in the U.S. when it decides the overnight rate that banks pay each other for borrowing reserves when a bank has a shortfall in required reserves. This rate is the fed funds rate. The FOMC also determines whether the Fed should add or subtract liquidity in credit markets separately from that related to changes in the fed funds rate. The Fed announces its policy decision (typically whether to change the fed funds target rate) at the end of each FOMC meeting. This is the FOMC announcement. The announcement also includes brief comments on the FOMC's views on the economy and how many FOMC members voted for and how many voted against the policy decision. Since the last recession, the statement also includes information on Fed purchases of assets, so-called "quantitative easing", which affects longer-term interest rates. Also, a key part of the announcement is guidance on potential changes in policy rates or asset purchases.  Why Investors Care
 
[Chart]
The Fed closely monitors the core PCE price index to indicate whether or not policy is approximately correct, overly accommodative, or too restrictive. The PCE price index is preferred to the CPI because it is more closely aligned to the cost of living than the CPI (which measures a fixed basket of goods & services.) This chart covers monthly data and the fed funds target rate reflects the monthly average. As such, it will not correspond to the most recent fed funds rate target announced by the Fed.
Data Source: Haver Analytics
 

2012 Release Schedule
Released On: 1/253/134/256/208/19/1310/2412/12
 


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