Market Overview

No Policy Changes Expected From FOMC Meeting Today


As US Federal Reserve's Federal Open Market Committee meets this afternoon, few expect any surprises coming out of Bernanke's statement. Specifically, Bernanke is not expected to back out of the Fed's commitment to maintain low rates through the end of 2014.

The Fed is expected to do is to acknowledge the slight improvement in the the labor market, following continued strength from Friday's non-farm payroll report. However, Bernanke should continue to temper any sign of premature optimism by pointing out that the GDP must show meaningful uptick before markets call an end to challenges. On the employment front, he may reinforce his thesis with the fact that the unemployment rate stayed put despite meaningful gains in job creation.

While the Fed may acknowledge solid retail sales reported this morning, it may point out that a more pronounced trend of increase in consumer spending is needed before considering meaningful changes to the current thesis in monetary policy.

In today's meeting, the Fed chairman should also seek to keep in check any pessimism related to the increase in commodity prices, especially gasoline prices. Bernanke may seek to assure markets that any increases are transitory and should not have any meaningful effect in the long term, in the form of increased inflation.

In other fronts, Bernanke may also comment on the bank stress test, whose results are expected at 4:30pm Easter on Thursday. The latest stress test is designed to show how 19 of the largest US banks may fare in another round of deep recession, and without taxpayer funder bailouts.

We may also gain more insight on the so-called Operation Twist, where the Fed has switches some of its lon-term balance sheet for shorter termed securities in the interest of keeping lon-term interest rates in check. The Fed may offer an outlook on the tactic beyond its current June deadline.

The FOMC meeting starts this afternoon at 2pm.

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