Archived IMT (2011.04.27)

The FOMC statement produced changes in the description but ended up with a similar conclusion. The inflation reference was different in that it descried it to have picked up and Commodity prices have risen significantly but the conclusion remains the same i.e. longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued. There is no mystery that . . .

There is no mystery that the $600 bln QE program will end in June. The more important part for the markets is the fate of the Feds mortgage principal payments, which the Fed will decide to what extent it will re-invest them (a way to extend the easing) and to NOT re-invest them and hence, allow a gradual shrinkage of the balance sheet as these holdings expire. The FOMCs next meeting will be on June 22, at which point the Committee would have ended its POMO programs but may reinvest part of its mortgage payments, which will become the key lever of shifting liquidity and monetary policy depending on the interplay between growth, unemployment and inflation. These are the points that will likely be communicated by Bernanke at today's conference. Some FX and bond traders may have had their attention drawn by todays inflation reference, but I continue to see the road to $1.49 unhinged for EURUSD as is clarified in this video charts presentation:

http://bit.ly/kONwpr

AL