Nobody knows

Nobody seems to know what to make of this evening's FOMC statement.

Equities are up since the announcement- barely- and are now sitting smack on the boom/bust line of 1400.

The strip has rallied, and Fed funds futures are now once again pricing in a modest chance of a rate cut later in the year....though also continue to price in a chance of a hike later in the year.

The dollar's gone down.....a little.

Of course, the statement itself is curious. Gone are the references both to downside risks to growth and upside risks to inflation. It sounds like the Fed itself doesn't know what to do.

What to make of it?


Macro Man doesn't know.
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April 30, 2008 at 7:51 PM ×

You're right, it's difficult for everyone to understand what it mean.
Also markets have strange reaction..
bonds up, equity up, dollar down, steepening tells me a dovish view
but it seems to me a little hawkish instead: 2 dissenters, substansial easing to date, no growth risk to downside!
they need time..

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Anonymous
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April 30, 2008 at 8:56 PM ×

I'm surprised that they weren't more hawkish. My bet is that the Fed has already seen the payroll number and it's an ugly one.

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Anonymous
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April 30, 2008 at 8:59 PM ×

They're just trying to manage the psychology to foster calm and confidence. Last thing they need right now is a market perception of major Fed concern - one way or the other.

Too hawkish, equities crash with a major bear steepener across the curve - too dovish, big-time bull steepener, USD and equity crash. Neither scenario adds to their flexibility going forward...

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Mr. Prop
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April 30, 2008 at 9:21 PM ×

Red or dead... Go Reds. Monetary heroin still available, but conditional on risky asset pain. Well, lets not dissapoint the addict. First, take him off life support. Thats what Ben did today.

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don
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April 30, 2008 at 9:39 PM ×

No doubt the Fed has already seen the payroll number.

The Fed is counting on re-inflating, which includes rising wages. But as unemployment grows, then the re-inflation attempts will flounder.

Tough predicament.

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shankar
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May 1, 2008 at 12:44 AM ×

Quite sure that the Fed doesn't like the employment number BLS will publish on Friday.

BTW, the rally fizzled and in spite of repeated efforts, the indices are failing to breakout.

Your thoughts?

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Anonymous
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May 1, 2008 at 4:52 AM ×

I knew right away what it meant -- the economy is going in the toilet -- the real economy... Not the stuff you see in government data.

With inflation raging like it is -- it is obscene that the Fed wouldn't defend the dollar here. He works for the banks, not us. He could not defend the dollar because he wants to be able to come to the rescue of the markets if (I mean when) they plunge again on news that can't be massaged. And he obviously knows that's coming. He could have knocked the price of oil down 5 bucks with a strong statement. Think of all the consumer discretionary money that would have saved -- more than the rebate checks.

But no -- strong dollar is the last thing Ben worries about. He thinks his job is to be a savior to the markets. As if a 20 percent correction would end the world.

He doesn't get how it's making it much worse for everyone who isn't a millionaire. It's not his job to help regular people.

He will flate and reflate to stave off the write-offs that are being hidden indefinitely. How many times will Citigroup need just one more bucket of cash?

Stock market is in its own little world - divorced from reality just like Ben. His job is to keep reality at bay. Good luck with that.

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spagetti
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May 1, 2008 at 7:29 AM ×

the classic one you mentioned as well:

"sell in May, go away"

is probably the answer to your question.. sell risky assets of course

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spagetti
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May 1, 2008 at 10:13 AM ×

MM

what do you think of the S&P and the EURUSD chart here after it failed to close higher yday ?

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Anonymous
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May 1, 2008 at 10:45 AM ×

"It sounds like the Fed itself doesn't know what to do."

BINGO! We have a winner!

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Anonymous
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May 1, 2008 at 10:56 AM ×

The Fed is like a little boy lost. The one who stuck his finger in the dyke knew what he was doing but not our erudite Mr Bernanke snd his colleagues. Volcker said it all: the Fed's task is price stability and the dollar. Fighting a recession belongs to the government.

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Macro Man
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May 1, 2008 at 11:23 AM ×

Spagetti: see today's post.

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