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Fed Policy Outlook
March 3, 2010
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Analytical Contacts:Kim Rupert +1 650-401-6727 kim.rupert@actioneconomics.com
Michael Wallace + 1 650-563-9370 michael.wallace@actioneconomics.com |
Tuesday, March 9, 2010
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Action Bullets
- Today's Beige Book isn't expected to have any fresh insights on the economy, indeed likely to reiterate moderate growth, but could make some concession to the weather
- Fed Chairman Bernanke's Humphrey Hawkins contained a lot of elements from his Feb 10 written testimony as he generally outlined the Fed's exit strategy and attempt to normalize rates (24-Feb)
- Fed Board raised the discount rate 25 bps to 0.75% (18-Feb); the move was well telegraphed (see below) though the timing caught us and the markets off guard
- FOMC left rates unchanged with 0% to 0.25% target range and reiterated "exceptionally low" rates for an "extended period" language at Jan 27 meeting, but hawkish Hoenig dissented (9-1 vote) against the need for that statement
- Fed announced a reduction in the maximum term for primary credit loans to 28 days from 90 days previously (17-Nov-09)
- Senior Loan Officer Survey showed banks continued to tighten terms and standards, though the net percentage of those doing so continued to decline
- Fed began buying Treasury's outright (under QE regime) on March 25 and finished at end of Oct
- Fed began buying MBS on January 5 as part of the $500 bln purchase plan announced on November 25, 2008; the size was upped by $750 bln to $1.25 tln at March 18, 2009 FOMC to a total of $1.25 tln by year end
- Fed begins buying agency debt outright (under QE) on December 5, originally planing to purchase up to $200 bln this year, but revised it to $175 bln through Q1 2010
- FOMC upgraded its forecast for 2010 growth slightly in January 26, 27 minutes versus November
- Fed funds futures remain irrelevant under ZIRP policy regime, but implied rates suggeting gradual rise from mid 2010
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