Preview of the Sept 21 FOMC meeting/statement from JP Morgan- $$

Preview of the Sept 21 FOMC meeting/statement
Economic Growth
· What they said on Aug 10 – “Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidentialstructures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higherlevels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated”
· Expectations for Sept 21 – the numbers since the last meeting have signaled stabilization, albeit at sluggish levels, of economic activity – this will prob. be discussed during this section of the statement.  The line about “the pace of economic recovery is likely to be more modest in the near term than had been anticipated” will probably remain.
Inflation
· What they said on Au g 10 – “Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time”

· Expectations for Sept 21 – the language will probably stay relatively unchanged on the inflation front. 
Rates
· What they said on Aug 10 – “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period”
· Expectations for Sept 21 – the language will probably stay relatively unchanged.  The “extended period” comment is expected to stay. 
Asset purchases
· What they said on Aug 10 – “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principalpayments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.  The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.  The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability”
· Expectations for Sept 21 – this will be the most focused upon section of the FOMC release.  Recall the decision back on Aug 10 to reinvest maturing MBS back into Treasuries took the market by surprise (more the timing than the actual deed).  For the Sept 21 meeting, no new actions are anticipated on the asset purchase front.  However, lately, there has been a lot of talk that the Fed could unveil a plan to resume outright balance sheet expansion at its Nov 2-3 meeting (via stepped up Treasury purchases) and investors will mine this paragraph to see if any signals are sent (the consensus thinking is that this paragraph will more explicitly hint at further QE at the Nov meeting). 
Voting
· What they said on Aug 10 – “Voting for the FOMC monetary policy action were:  , Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.  Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee's ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve's holdings of longer-term securities at their current level was required to support a return to the Committee's policy objectives” 
· Expectations for Sept 21 – assuming that all major policy statements will remain unchanged, Hoenig is expected to again dissent.