Chillin' out till it needs to be funded
Forecasts for the US Ecoonomy at the June FOMC were down by as much as 0.5 % on GDP, with 2013 forecasts to 2.7-3.1% and 2012 data to 1.9-2.4% GDP and even unemployment forecasts moved south to 8.2% at the top of the range in 2012 and 8% in 2013. PCE Inflation and Core inflation is shon under control. The inflation target for the Fed is just under 2%
The Fed Chairman spoke two hours later and the reaction in equities, final by then at a 75 points shaved off the Dow, despite a new $267 B extension of the OT program to end 2012 shows the mismatched market expectations as growth estimated are reduced
The speech followed the theme set out in the FOMC statement, expounding on the deterioration in the job markets. He did mention while mentioning the dull forecasts that they will be inputs to the committee and the FOMC also said that they will not shy away from more action to support the Economy. However, “monetary policy is not a panacea”, ” I do think there are tools, that are non standard and can still create accomodative financial conditions”,”however monetary policy still does have some capacity to strengthen the Economy by easing Financial conditions”.
The Fed , looks likely to support the markets only marginally which may be welcome as even this residual program on long dated securities targets interest rates that are already low, the longest end of the yield curve beyond 30 years at hardly 3% and falling. Chances are that any further monetary push will come from outside the USD zone