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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Crimson Ghost who wrote (1995)3/14/2004 5:06:06 PM
From: mishedlo  Read Replies (2) of 116555
 
What to expect on tuesday FOMC

Odds of a move in either direction are close to ZERO.
Of more interest will be a bias change (doubtful IMO) or those pouring over every freaking word looking for a bias change at the next following meeting (extremely likely).

The Eurodollar market went nuts on the totally meanigless change from "considerable period" to "patient" last time around.

Now the question is: What does Greenspan hope to accomplish this time?

My answer is
1) he does NOT want to produce another bond blowout top like last summer.
2) he will want steady or slowly rising refiancings preferably at variable rates (to reduce the risk to FNM) and to apply more stimulus over the short term
3) he will not want to spook either the stock market or bond market

Thus look for him to say a bunch of mumbo jumbo that amounts to a lot of nothing, while he is exactly hoping for little reaction either way.
Bearish treasury sentiment is probably good for him as long as it is not excessive. Expect treasury bears to pour over every frigging word in search of the "holy grail" that rates are going up. I expect many to THINK they founnd what they seek regardless of what he says. It is possible that he wants to talk up treasury YIELDS just A BIT but the the damage to FNM is probably already done so he will probably opt for the status quao.

In short:
The risks of inflation and deflation remain approximately the same but the consequences of being wrong are more on the deflation side so we will remain accomodative "for now". We are a bit concerned over jobs but feel job growth is likely just around the corner as the recovery is still on track. Budget deficits and social security remain a concern.

Of course it will take him 3,000 words to say what I just said above, and it probably will not be anywhere near that clear either. Also note that treasury bears will look at the words "for now" and think this is the "big warning" for a bias change next meeting.

Mish
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