The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

The FOMC statement was little changed relative to the August meeting. The data “suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased.” They follow with the caveats of strained household spending due to “ongoing job losses, sluggish income growth, lower housing wealth, and tight credit” and also cutbacks in business investment but companies “continue to make progress in bringing inventory stocks into better alignment with sales.” They remain very sanguine on inflation as they believe the output gap will keep a lid on price pressures and they left out comments about the rise in commodity prices. Very dovish in my opinion and why the $ is at the lows. They will stretch out the buying of MBS/agency debt into Q1 ’10 and will end the purchases of treasuries in Oct. Net-net, a non event.

The best of explanation of the rally in stocks to a non event FOMC statement is that the Fed basically reiterated that money will be easy at a continued “exceptionally low” level for an “extended period.” They also backed this up with their very comfortable view that “inflation will remain subdued for some time” and didn’t even mention commodity prices as they did in August. Easy money has been a main backdrop and influence in the capital markets recovery since the March lows and the FOMC gave the green light for that to continue. “Ben’s World, Party Time, Excellent,” “Party on Wayne, Party on Garth!”