Today's existing home sales data, which will simply confirm that there is no hope for the housing market, will be completely ignored as everyone focuses on what gizmo Bernanke pulls out today from his magic bag of tricks.
10:00: Existing home sales (August): Rebound. Goldman forecasts that existing home sales increased by 4.0% (month-over-month) in August to an annualized rate of about 4.85 million units. This would reverse the decline in July and return existing home sales to their June level. The consensus forecasts a smaller increase of 1.7% (mom).
GS: +4.0%; Consensus: +1.7%; Last -3.5%. MAP: 2
14:15: FOMC statement: Easing action. We see a high probability that the FOMC will announce further easing steps at the conclusion of today’s meeting. Several factors argue for action now rather than later. First, the FOMC put in place an easing bias at the last meeting. Second, Fed communication has indicated that easing options will indeed be discussed at the meeting. Third, the Fed will be technically prepared to use most of its remaining tools. Many of the options likely to be discussed have been around for a while, the staff has had time to assess these tools further since the August 9 meeting, and the committee has now had two days to finalize details.
A change in the composition of the Fed’s balance sheet—“Operation Twist”—looks very likely. However, there is still considerable uncertainty about the size and maturity mix of the sales and purchases. As a complementary measure, we also expect that the committee will announce a cut in the interest on excess reserves (IOER) rate to 0.1% from 0.25%, although this is a much closer call. An IOER cut would lower market interest rates a small amount and could aid communication.
We see low odds of a change in the Fed’s communication of its policy objectives, a proposal supported by Chicago Fed President Evans and others. This is a complex and somewhat controversial idea, and likely requires further discussion. There also appears to be little appetite on the committee for an outright expansion of the Fed’s balance sheet