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Fed Policy Outlook
February 5, 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, February 9, 2010
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Action Bullets
- FOMC will be closely watched as many economists look for policymakers to embark on an exit path by mid-year; we'll look for hints from Bernanke at the February Humphrey Hawkins
- FOMC left rates unchanged with 0% to 0.25% target range and reiterated "exceptionally low" rates for an "extended period" language intact at Jan 27 meeting, but hawkish Hoenig dissented (9-1 vote) against the need for that statement
- Fed likely to start draining reserves via reverse repos, and or increase the interest it pays on reserves, before starting to hike the funds rate
- FOMC left policy stance unchanged and reiterated that rates will remain exceptionally low for an extended period (16-Dec-09)
- 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 Chairman Bernanke's Monetary Policy Report (aka Humphrey-Hawkins) on July 21 had no real revelations (especially given his pre HH op-ed in the WSJ), cautiously optimistic on outlook
- Fed began buying Treasury's outright (under QE regime) on March 25 and finished at end of Oct
- TALF began March 18 with borrowers which have been quite low
- 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 in November FOMC minutes, versus June, and showed a modestly improved outlook on unemployment, with little change to the inflation rate
- Fed funds futures remain irrelevant under ZIRP policy regime, but implied rates suggeting risk of a small uptick in mid 2010
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