Story: Text:
KEY POINTS: * The policy statement reflected a somewhat brighter tone than it had at the previous meeting in December, although the Fed removed a reference to improvement in the housing market. * 'Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating,' the Fed said. * In the December statement, the Fed had said economic activity 'has continued to pick up.' * The decision to hold rates steady was 9-1, with Kansas City Federal Reserve Bank President Thomas Hoenig dissenting because he wanted the central bank to eliminate a phrase vowing to keep rates exceptionally low for an extended period.
COMMENTS: BRUCE BITTLES, CHIEF INVESTMENT STRATEGIST, ROBERT W. BAIRD & CO, NASHVILLE:
'There was one dissenter which is the first time we've had someone dissenting in quite a while. He was raising the inflation flag but outside of that, I don't see a whole lot in this report.
'It's only one, (Hoenig) is a new member of the Fed and historically a hard liner against inflation, so it's not too, too surprising that he might raise some concern.
'I didn't expect (anything new) with the economy soft and the Fed indicating all along there would be no rate hike for a considerable period of time, so I don't see that report being a market mover.'
LAWRENCE GLAZER, MANAGING PARTNER, MAYFLOWER ADVISORS, BOSTON:
'Stocks initially took a hit and then you saw a reversal -- Treasuries are also reversing. The Treasury market was very strong this morning.
'Treasuries continued to attract assets as investors have few alternatives, particularly as the equity markets have become jittery over the last few weeks with concerns that the global growth story is still intact. The reaction right now to the Fed has actually been somewhat neutral. You are seeing some stabilization of equity prices and some stabilization of risk assets and a little bit of a selloff in Treasuries.
'There is still a jittery tone to the market, particularly as the market digests both economic and political news and digests the snapback rally in equities over the past 12 months.'
JOHN SILVIA, CHIEF ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA:
'The first important takeaway was the upgrade to the economic outlook and the second interesting point was the dissent. The dissent should take some of those out there who thought the Fed would be on hold for another year or so out of the equation. The Fed will keep rates low for the remainder of the year. So, the majority now believes the Fed will be on hold for just this year.'
MICHAEL POND, TREASURY AND INFLATION LINKED STRATEGIST, BARCLAYS CAPITAL, NEW YORK:
'This is clearly more hawkish than the market was expecting. The (Thomas) Hoenig dissent is certainly important and a step along the likely long path toward the first rate hike, which we still think will be in September of this year. They also announced they will end as planned the MBS purchase program at the end of March. That is consistent with our expectations, but I think over the past couple of weeks some market participants had been expecting them to extend that program because of concerns over the housing market.
'They no longer look for cost pressures to dampen inflation, but they expect slack to restrain cost pressures. Before, they had slack should dampen cost pressures. That is a nuanced way of saying they are less concerned about deflation, although they continue to expect inflation will not be a near-term concern.
'It was indeed hawkish relative to expectations and the bear move after the announcement does make sense but it's not a game-changer. We continue to expect that the Fed will hike in September and they will get increasingly hawkish as they move toward that date.'
CHRISTIAN COOPER, INTEREST RATE STRATEGIST, RBC CAPITAL MARKETS, NEW YORK
'I think the market was surprised by Hoenig's dissent. Even though he is a hawk, to dissent when the employment picture is this unclear and even when the status of Bernanke is unclear, sends a particularly strong message.'
GREG SALVAGGIO, SENIOR VICE PRESIDENT FOR CAPITAL MARKETS, TEMPUS CONSULTING, WASHINGTON:
'The Fed statement was as expected. But we do have some positive things from the statement that has boosted the dollar. The Fed specifically mentioned the fact that the deterioration in the labor market is abating. That's dollar-positive. In terms of interest rates, the outlook remains the same based on the statement. Low interest rates will be here for some time. Our view is that once the labor market starts recovering, then we could start pricing some rate hikes. Also helping the dollar was the announcement on the ending of swap lines among central banks. That takes away dollars in circulation and that should be dollar-supportive simply because of supply and demand.'
JOE MANIMBO, CURRENCY TRADER, TRAVELEX GLOBAL BUSINESS PAYMENTS, WASHINGTON, D.C.
'Just from what I've seen initially, most of the commentary is pretty much as expected, with the one exception being that we did see a dissenter. We did see Fed official (Thomas) Hoenig dissented and opted to withdraw the extended period vow from the Fed. So going forward, that's more of a dollar positive scenario since that suggests in coming meetings, we could see that phrase (extended period) removed from their statement.'
JEFF KLEINTOP, CHIEF MARKET STRATEGIST, LPL FINANCIAL, BOSTON:
'I think the statement was very much as expected. The Fed chose not to rock the boat.
'They didn't change the mortgage-backed securities schedule, and I guess some people might have expected they might have extended that, (so) a little bit of disappointment on that.
'I think we might see some weakness in housing-related stocks related to that disappointment.'
BRUCE MCCAIN, CHIEF INVESTMENT STRATEGIST, KEY PRIVATE BANK, CLEVELAND, OHIO:
'It seems like a fairly cautious statement still but does clearly recognize the deterioration in the labor market is abating. There is nothing in it I think that suggests they see inordinate problems that won't be worked out over time.
'From that standpoint the timetable for beginning to unwind many of their programs seems to still be in place, but without being specific about when they will become restrictive.'
SCOTT MACDONALD, HEAD OF RESEARCH, ALADDIN CAPITAL, STAMFORD, CONNECTICUT:
'Stopping the MBS purchasing program in March can raise questions as to the strength of the recovery.
'It comes on the heels of the fact that sales of new homes fell (in December).
'So if they're wrong about withdrawing that support from the mortgage market too early, there could be negative consequences.'
KURT KARL, CHIEF US ECONOMIST, SWISS RE, NEW YORK: 'The statement is overall a positive one. The Fed is saying they have enough confidence in the markets to let the liquidity measures expire as expected. They are saying rates will stay low for an extended period of time, which is good for stocks, and that the other measures will run through as scheduled. Again, it's an overall positive statement and that's why the dollar is rising.'
JOSEPH TREVISANI, CHIEF MARKET ANALYST, FX SOLUTIONS, SADDLE RIVER, NEW JERSEY:
The Fed: 'The Fed view on the economy is unchanged. They have retained the key phrase warning of exceptionally low levels of federal funds rate for an extended period. It is dollar neutral.'
On swap lines: 'It is not unexpected because these lines were created to handle dollar demand for the financial crisis and that need has receded.'
MARKET REACTION: STOCKS: U.S. stock indexes added to losses. BONDS: U.S. Treasury debt prices fell. DOLLAR: U.S. dollar added to gains against the euro.
Keywords: USA ECONOMY/FEDDECISION (Reporting by New York Treasuries Desk; +1-646 223-6300) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
© 2010 AFX News
