Happy Fed Day! Ed’s Daily Notes for March 19th   5 comments

Bloomberg: Fed Decision Day Guide From Yellen Debut to Overhaul of Guidance

This is what you need to know today:

Here’s what to look for when the Federal Open Market Committee releases its policy statement at 2 p.m. today in Washington along with new economic projections. It is the first meeting led by Federal Reserve Chair Janet Yellen, who plans to give a press conference at 2:30 p.m.

— Rate-guidance overhaul: The FOMC will probably switch to “qualitative guidance” to convey its message that borrowing costs are likely to stay low until the economy improves, dropping a pledge to avoid raising the benchmark interest rate as long as unemployment exceeds 6.5 percent, according to 76 percent of economists in a Bloomberg News survey March 14-17. Officials including Philadelphia Fed President Charles Plosser, a voter on policy this year, said the FOMC should scrap the commitment now that unemployment is nearing the threshold.

— The Fed will probably signal its policy plans based on a “broad array of economic indicators,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. and a former New York Fed economist, said in a note to clients. These will probably include nonfarm payrolls, the hiring rate, the quit rate and the pace of gross domestic product growth, said LaVorgna, who is based in New York. He added that Yellen in a speech last year said she watches those measures, among others.

— “It’s a great time to make the change” in communications strategy because Yellen can explain the guidance in her first press conference as Fed chief, said Carl Tannenbaum, chief economist at Northern Trust Corp. in Chicago.

— Steady speed: The FOMC today will announce another $10 billion reduction in the monthly pace of bond purchases and continue trimming at that pace at every meeting before announcing an end to the program in October, according to the median of responses in the survey of economists. The Fed announced its first cut in December, and in January scaled back purchases by another $10 billion, to $65 billion.

An increase in tapering QE or an increase in the benchmark interest rate could send markets reeling today, but I would call that a low probability event. However, if the Fed’s statement should indicate a willingness to do either of these in the near future, markets could react adversely. Remember: It’s not the action (unless they do something unexpected), it’s the message.

Reuters (via Yahoo): Bankers fear leaks from ECB health check

It looks like I picked a good time to get out of Europe:

Euro zone bankers are worried that sensitive information will leak out before the official publication of the bloc’s review of bank balance sheets, triggering speculation and making investors uneasy.

The European Central Bank is putting the euro zone’s 128 largest banks through a rigorous health check before it becomes their supervisor in November and plans to publish the results in one go in October to avoid market disruption.

Even if some banks were to issue positive news about the tests, that might put pressure on other banks to show how well they compared.

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Posted March 19, 2014 by edmcgon in Federal Reserve, News

5 responses to “Happy Fed Day! Ed’s Daily Notes for March 19th

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  1. Ed – while I understand your selling SAN, my hypothesis is that Europe will recover nicely over the next two years and now is the time to be planting some seeds to benefit from that. My two main plays are IEV and CS. IEV is my only ETF and holds some of Europe’s largest companies. CS is Credit Suisse and as a Swiss bank I believe they are in better shape than banks in European Union. Yet they should benefit tangentially from a rebound in Europe.

  2. Marshall,
    So what is the basis for your hypothesis that Europe will recover nicely?

  3. Ed – economies move in cycles. My belief is that Europe has hit the bottom of their cycle and is moving up. The past three quarters have shown positive GDP growth following six straight quarters of contraction. Could they crash back again? (A triple dip?). Anything is possible. Then European companies are much cheaper than US counterparts. The price to earnings ratios and price to book ratios are lower. Not a sure thing, but my thoughts are it is time to shifts assets from US centric to Europe centric.

  4. Marshall,
    I won’t say you’re wrong, but I will say George Soros disagrees with you.

  5. Marshall,

    I’ve been thinking along similar lines and bought one of the few mutual funds I own – OBIOX a few months ago. It holds only international – so some Europe, also Asia – small and mid cap. They’ve been doing very well. Even if you don’t want a mutual fund, you may be able to get some ideas from looking at their holdings.

    BTW – I have been following and enjoying your blog, as well.

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