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Aug 6
All eyes on the FOMC- FOMC meeting preview

Tommorrow at 2:15 the Federal Open Market Committee, or the FOMC, will come out with their policy statement on monetary policy in the United States. The stock markets rose in a huge way today, leading some to wonder if the markets are expecting some kind of help from the FOMC.   bernanke%202.jpg

The current Fed Funds rate stands at 5.25% and has not been changed since June of 2006. Many economists believe that rates will finish off the year at a level similar to the current 5.25%. Some economists believe that the FOMC will lower rates to 5% before the end of the year, but hardly any expect any move tommorrow.

With almost no market strategists expecting a lowering of the Fed Funds rate, all eyes will be on the monetary policy statement and its wording. The FOMC has been consistent in its last few reports with a bias against inflation, which certainly doesn't lend itself to any near-term rate cuts. The question is, will the FOMC respond to the market turmoil of late in the fixed-income markets? Bear Stearns has made it clear that conditions are terrible, and we've seen American Home Mortages file for bankruptcy because of subprime problems.

Many economists believe the FOMC will ignore the recent turmoil in the credit markets and allow the situation to play itself out more. The FOMC will want to make sure that inflation is completely in check before it moves toward a policy of easing rates. If the FOMC says nothing and indicates a continued bias against inflation, the stock market could be in for a rough ride.


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