today the Fed starts the policy meeting

Foreign Exchange : In addition to data like Case Shiller home prices and the conference Board consumer confidence index, today the Fed starts the policy meeting. We can perhaps expect two outcomes.

One is a revision of the Fed's forecasting time horizon. Retired member Mishkin said "Interest rates are no longer what monetary policy is about. A much more important part of policy now is managing expectations, and, in an environment like the one we are in now, having more clarity on inflation objectives becomes critical." In other words, we could get an inflation target but it would apply for a longish timeframe, like 3-5 years.

The other big subject is managing the balance sheet, already ballooned out of all recognition. We are pretty sure the Fed is going to buy Treasuries, in part to manage the long-term rate, but how is it going to get out of the market-manipulation business? In other words, what’s the exit strategy? We’d like to know that at the beginning, before the entry.

We say it's much too early to consider fear and more fear to be losing its grip. If bad debt really is $2-3 trillion and only $1 trillion has been disclosed and addressed, more shocks are to come. The US dollar exchange rate remains a good bet even if it’s not straight-lining anymore.

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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