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Previewing Today's 2:15pm FOMC Decision

Tyler Durden's picture




 

For the most part, today's FOMC decision is expected to be a non-event, if indeed Jon Hilsenrath is still the proper "distribution" venue for the Fed, with Bernanke expected to focus on "communicating" clearer. There is of course the chance that the Fed has finally realized that the only successful Fed announcement, is that which surprises the market, and in the off chance it wishes to clean itself of allegations it is leaking news to the WSJ, and on the other hand indeed stun the market, there is that modest possibility the Fed may preannounce QE3 today, something which Bill Gross is actively preparing for, by loading up on MBS - the security that Citi expects will be monetized to the tune of $700 billion in 2012. Furthermore, SocGen is convinced the Fed will announce QE in a month, so will 30 days this way or that truly matter? After all, it is an election year... plus the hedge funds really need that year end rally, or else the closure of up to 25% of the underperformers will send shock waves within the rehypothecation conduit of Prime Broker shadow funding.

Here is the conventional wisdom FOMC consensus courtesy of RanSquawk:

Despite talk of various policy-easing options being considered at the Fed, the consensus remains that the central bank will refrain from major policy shifts and instead delay those decisions until its next meeting in January. Lately, the economic data from the US has remained upbeat – the University of Michigan Confidence rose to a six month high in December, while the latest trade deficit reading narrowed – which may provide the Fed room to wait until next month before considering further easing. Moreover, the outcome of the debate on extending a payroll tax cut and unemployment insurance is yet to be decided due to which the Fed won’t know how much fiscal drag the economy will be dealing with this year, and hence prevent it from clarifying its goals for unemployment and inflation in today’s meeting. The Eurozone debt crisis will likely weigh on US growth prospects and the financial system, however policymakers may be tempted to wait for further clarification on measures adopted by the EU leaders in a recent summit, together with impact of the coordinated action by various central banks to enhance liquidity in the global financial system.
 
The FOMC is expected to reiterate its stance of reinvesting principal payments from its holdings of agency debt in MBS and of rolling over maturing Treasury securities at auction. It is widely anticipated that one of the various moves by the Fed could be a large scale purchase of MBS, however the Fed is unlikely to opt for this option today as most housing market indicators have been positive in the past month. The Fed also has the option of changing the discount window, however it is unlikely to take this route until all other tools are exhausted.
 
Overall the reaction in the market is likely to remain muted if the Fed goes with the consensus of no major policy shifts. However, if the FOMC decides for additional purchases of MBS, the long-end of the yield curve will likely come under pressure. In the unlikely scenario of setting an explicit target on inflation, the USD-Index may come under selling pressure and strength is likely to be observed in T-Note futures.

 

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Tue, 12/13/2011 - 08:09 | 1973194 GeneMarchbanks
GeneMarchbanks's picture

Yesterdays sell-off was probably due to the FOMC announcements being leaked. I expect verbal diarrhea and not much else.

Tue, 12/13/2011 - 08:14 | 1973204 Sam Clemons
Sam Clemons's picture

However, gold and silver are giving them plenty of room now for a big announcement.

Tue, 12/13/2011 - 08:45 | 1973256 firstdivision
firstdivision's picture

Oil has not though.  Cannot kill the already bad holiday shopping by having gas at $4 this early.

Tue, 12/13/2011 - 08:54 | 1973276 qussl3
qussl3's picture

Problem with oil is that it WILL not go down unless demand goes away, and that doesnt happen without a crash.

There is almost no possibility of a supply glut in oil without a major contraction in economic activity.

People will pay whatever the price is because they have to.

I'm beginning to revise my opinion that high oil precludes QE. QE may come even with crude and brent in the triple digits.

It is better to crash the economy due to high energy prices and blame the "specs" than it is to let the banks and countries debt burn, better for the politicians and banking elite that is.

Tue, 12/13/2011 - 08:10 | 1973198 Eos
Eos's picture

Belorussian already carry cash in backpacks! US will be next! LOL

http://www.youtube.com/watch?feature=player_embedded&v=3dJaQzoz7GU

Tue, 12/13/2011 - 09:02 | 1973296 flacon
flacon's picture

Worthless paper. 

Tue, 12/13/2011 - 09:04 | 1973301 Alex Kintner
Alex Kintner's picture

Surreal? Literally a wheelbarrow of bills to pay for a few six packs of soda. Is that where Bernanke is headed with his PrintMania?

Tue, 12/13/2011 - 08:14 | 1973203 Clint Liquor
Clint Liquor's picture

I vote for the surprise QE3 buying up of $1 Trillion in MBS. The raid on Gold is the setup.

Tue, 12/13/2011 - 08:17 | 1973211 qussl3
qussl3's picture

Funny thing about this "raid" is that dec contracts seem to be increasing not falling, unless someone is damn sure they have a loads of gold ready for delivery this could get interesting.

24th is the deadline for Venezulean gold delivery too if i recall.

Tue, 12/13/2011 - 09:48 | 1973418 slaughterer
slaughterer's picture

Problem is, a surprise QE 3 today would have already been leaked to the PDs, killing the chance of a a surprise QE 3.

Tue, 12/13/2011 - 08:16 | 1973207 rawsienna
rawsienna's picture

Makes no sense to buy MBS in large size unless there is an effective refi policy in place.  Harp 2 looks like a bullshit program in that in only addresses pre June 2009 loans.  Small possibility they do a MBS twist (sell higher coupon MBS to buy lower coupon MBS) to help support the weak refi programs already in place.  Not enough MBS to do large scale purchases. 

Tue, 12/13/2011 - 08:25 | 1973225 Clint Liquor
Clint Liquor's picture

 

Not enough MBS to do large scale purchases. 

I think Fannie and Freddie could fix that in a heartbeat.

Tue, 12/13/2011 - 08:16 | 1973209 spankfish
spankfish's picture

I have grown tired of all this... I hit the "trunk monkey" button.  All is being taken care of.

Tue, 12/13/2011 - 08:19 | 1973212 Dick Darlington
Dick Darlington's picture

OT: RTRS - GREECE, PRIVATE BONDHOLDERS' TALKS IN ATHENS END WITHOUT DEAL, CONSULTATIONS TO CONTINUE- BANKER INVOLVED IN TALKS

 

But but but, Jabba the Hut said he already had 100% participation guaranteed.

Tue, 12/13/2011 - 08:27 | 1973230 AngryGerman
AngryGerman's picture

voluntary participation is a hoax. why even bother with it. banksters don't have to agree to any cuts. and since at the last eu summit the fuckers have decided that there won't be any further private participation in the reduction of outstanding PIIGS debt, why accept any for Greek debt??

Tue, 12/13/2011 - 08:24 | 1973223 EL INDIO
EL INDIO's picture

It’s not yet time for QE3. The Feds are conserving their ammo for the big storm.

Europe has to crash first but not implode because that’s when both the FED and ECB will start seriously printing.

Central bankers are playing with extremes but will not let the system be destroyed.

Tue, 12/13/2011 - 08:26 | 1973227 GeneMarchbanks
GeneMarchbanks's picture

+98.32

Tue, 12/13/2011 - 08:29 | 1973232 AngryGerman
AngryGerman's picture

ammo? which ammo? all they have left is a lot of hot air...

Tue, 12/13/2011 - 08:49 | 1973265 TheSheepWolf
TheSheepWolf's picture

All they need to do is to add another 0 at the end of last QE amount and hit the fkin button. They do not even need to heat-up the printing presses anymore.

Tue, 12/13/2011 - 08:33 | 1973236 Ruffcut
Ruffcut's picture

May be time for WQE. Throwing the whole system system in massive debt with bogus money is easiest way to buy it, control and eventually kill it.

Why own too much already when you can own it all.

Tue, 12/13/2011 - 11:51 | 1974114 AldoHux_IV
AldoHux_IV's picture

If the fed was concerned with their survival, it should consider the fact that all attempts to offset the declining shadow banking i.e. liquidity has failed because they are approaching it from the wrong side.

In proceeding with further QE, the fed will put its own existence along with the overall financial system in final jeopardy-- and the answer is: the mother of all reversions to the mean that voodoo finance can not combat.

Tick Tock

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