Market Overview

FOMC Preview


Today's focus will be the FOMC decision we do not expect much to happen before that, reason why we will post a preview of what Nomura is expecting from the FOMC.

At the conclusion of the 11-12 December meeting we expect the FOMC to announce a new program to purchase long-term Treasury securities (17:30 GMT). We expect this new program to take effect once purchases under the existing Maturity Extension Program (“Operation Twist”) conclude at the end of this month. We expect additional purchases of Treasuries to match the size and pace ($45bn/month) of Operation Twist, but to be spread across the yield curve. We also expect the FOMC to reaffirm that it will continue to buy Agency mortgage-backed securities (MBS) at the same pace as it is now ($40bn/month). In our view, these purchases are likely to continue until the end of Q3 2013. Additionally, the FOMC is considering changes to its interest rate guidance. The committee is trying to find a way to link its interest rate guidance to economic conditions, rather than just a specific date. Some innovation in the policy statement is possible at the December meeting, but we think it is more likely that changes will come next year.

Thanks a lot to Nomura for the report.

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