The FOMC meeting finishes today with the publication of its traditional statement. There is no press conference and no new separate economic projections, which are released in the last month of each quarter. The FOMC switched from its operation twist that ended in December to renewed purchases of long-term Treasuries ($45B). It continued its monthly purchases of MBS ($40B) and the re-investment of the proceeds of the redeemed assets of its portfolio. The programme is open-ended which means it is discussed and eventually stopped or adapted at each FOMC meeting. The Committee vowed to continue buying assets at the current pace until it sees substantial improvement in the outlook for the labour market. There are currently no signs of such substantial improvement. On top of it, while the fiscal cliff has been averted for now, it is still unclear how the fiscal policy, under intense discussion for now, will affect the economy and thus the labour market in the next 12 months. In such a context, we expect the FOMC to continue it LSAP (large asset purchase programme) unchanged.
From the Minutes of the previous FOMC meeting, we know that discussion are ongoing about the programme, its effectiveness, its impact on risk and Fed balance sheet and on its exit. The Summary of the discussions even showed that governors were about evenly divided on the question whether they thought the programme would be completed by mid-2013. However, on our count, Bernanke has still a comfortable majority among the voting members of the Committee. It would indeed be odd to change already the policy after one month. So, while the statement should be very much similar to the last FOMC, the Minutes, to be published in February might be more interesting as it could give us a view on the way thinking on the subject is evolving inside the FOMC. The absence of new economic projections and of a press conference makes it still more likely that there won’t be surprises. On rates, there will of course be no news. It will still be linked to the 6.5% threshold for unemployment rate and on the 2.5% threshold for inflation. Our view looks close to consensus and unless the FOMC surprises, market moves should be limited.