Looking At This Week’s Fed Meeting

The Federal Reserve meets today and tomorrow, and Ben Bernanke will hold a press conference tomorrow. There may actually be news to come from this meeting.

For one, the Fed will release a summary of its economic projections. Although Q4 looks like it will be a dud for GDP, there’s renewed optimism for above-trend growth next year.

The Fed will also probably extend some of its bond-buying programs. Operation Twist expires at the end of the year, although its impact has probably been very minor. I expect the Fed to announce some sort of program extension but I can’t say what.

There’s also the issue of what metric to follow when looking at monetary policy. Meaning, the Fed ought to continue to use quantitative easing until X happens. What’s X then? This idea is clearly bouncing around the Fed. The most popular idea in the blogosphere is for the Fed to target nominal GDP growth. I think the Fed may also consider growth in non-farm payrolls. Remember the C of FOMC is for committee so it may be a compromise.

The Fed has also taken to announcing when they expect interest rates to rise. I’m now at the point where I suspect that it may be too early to even guess. Most Fed members think rates will go up sometime in 2015. That seems so far away that I don’t know how much value it has. But the message to the market is to not wait for rates any time soon. However, the rather poor performance of gold suggests that some folks think rates could soon rise.

We’ll know more tomorrow.

Posted by on December 11th, 2012 at 3:10 pm

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