The only thing on today's light economic calendar is the FOMC’s April 26-27 meeting minutes, as the Fed proceeds to monetize bonds now that the debt ceiling has been reached.
11:00: Modest $1.5 - $2.5 billion POMO closes with the Fed buying bonds in the long end (08/15/2028-05/15/2041) of the curve
14:00: FOMC minutes (April 26-27 meeting): Following the chairman. This afternoon the FOMC will release minutes from its April 26-27 meeting. For the first time, the minutes come after a detailed post-meeting press conference from the Fed chairman, and they may therefore be a bit less valuable than usual. With regard to content, we expect their tone to be similar to the press conference. At that event Chairman Bernanke argued that weakness in growth during Q1 was due to mostly transitory factors, though the Fed saw more prolonged weakness in construction activity. On inflation, he said that higher commodity prices “account for pretty much all” of the increase in the Fed’s inflation forecast over the short-term, and that the committee would continue to watch inflation expectations closely.
A number of issues related to the Fed’s eventual exit from accommodative policy will also likely turn up in the minutes. At the post-meeting press conference, Mr. Bernanke said that “an early step would be to stop reinvesting all or part of the securities which are … maturing”. The minutes will likely also note that halting reinvestment will be one of the earliest steps toward tightening. There is slightly more uncertainty about other aspects of the exit process. In particular, CNBC recently reported that there was no longer a consensus among the FOMC that asset sales would come after rate hikes. We continue to believe that the FOMC leadership would prefer to sell assets only in the distant future—if at all—based primarily on testimony from Chairman Bernanke last year. The minutes will likely include a discussion of this issue, but we doubt they will signal broad support for early asset sales.
Finally, one surprise in the press conference was Chairman Bernanke’s definition of “extended period". In response to a question, he said “Extended period suggests that there would be a couple of meetings probably before action”, which indicated a shorter time commitment than the six months or longer we previously had thought. If the extended period language came up in a discussion of exit strategies, the minutes could clarify this issue.
19:00: St. Louis Fed President James Bullard speaks to the Money Marketeers group. Q&A scheduled.
And meanwhile in Washington we get a debt limit discussion, two securitization-related events, and another energy vote that is expected to fail...
9:30 am - Securitization. The Senate Banking Committee will hold a hearing on the state of the securitization markets, with several industry witnesses testifying.
10:00 am - Sen. Toomey speaks on debt limit. Senator Toomey (R-PA) is the lead sponsor of legislation to clarify that debt service would be the top federal priority in the event that the debt limit constrains net borrowing, with Treasury able to prioritize other federal spending.
10:00 am -- SEC rating agency meeting. The SEC will hold a meeting to consider proposing new rules to implement Dodd-Frank rules related to credit rating agencies and other providers of diligence for asset-backed securities.
2:30 pm - Senate votes on domestic oil production legislation. The bill includes measures similar to those that passed the House earlier this month. These require the Dept. of Interior to conduct lease sales in the Gulf of Mexico and off the coasts of Virginia and Alaska, extend for a year leases were stalled by last year's drilling moratorium, and expedite drilling permitting decisions. The bill is not expected to reach the 60 votes necessary to pass. Legislation to repeal $21bn in tax preferences for oil/gas producers failed yesterday in the Senate, as expected