Waiting on the FOMC

Don’t expect too much market action until tomorrow afternoon, when the FOMC emerges from its latest meeting. Especially in light of another rate hike from the Reserve Bank of Australia overnight, the market wants to know when the Fed plans on abandoning its near-zero interest rate policy.

“We believe there will be no change in the language,” notes our macro-man Rob Parenteau, “regarding holding the fed funds rate near zero for an ‘extended period’ at the next Federal Open Market Committee (FOMC) meeting, despite the real GDP advance in Q3. The Fed needs home prices to stabilize (if not advance) if further damage to household and bank balance sheets is to be contained.

“We suspect the end of Treasury purchases last week under the Fed’s quantitative easing regime is more important than guessing the precise language of the next FOMC statement, although the auctions during the week, we understand, went smoothly. Still, unless the relapse news builds, or the banks step up their purchases of longer-dated Treasury debt, the Treasury market has just lost a major buyer, as this part of the Fed’s quantitative easing operations has come to a close.”