Tuesday, November 17, 2009

Michael Mackenzie: Jitters over key policy meetings spark risk aversion

At its March meeting, the FOMC stated: "Economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." The use of "extended period" has been repeated in subsequent statements. As the economy has shown signs of recovery, so a debate over whether the Fed statement should evolve has begun.

"The consensus is that there will be no change, but there is a possibility that they tweak the statement," says Rick Klingman, managing director at BNP Paribas. "The problem with staying with the same language for a long time is that it becomes a bigger deal when you eventually change it."

While the FOMC may elect to retain the current wording today, the bond market is on guard for a change soon.

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