Vital Signs: The Fed Waits for Results

On deck: the Fed meets, industrial production, home builders' survey, housing starts, producer and consumer price indexes, and leading indicators

It’s Fed week. The Federal Reserve’s policy committee sits down for a two-day meeting on Tuesday and Wednesday to evaluate recent actions and plot future moves. Look for the Fed’s policy statement at the usual time, 2:15 p.m. ET on Wednesday.

No surprises are expected. In fact, the statement will most likely read similarly to the one after the Jan. 27-28 meeting. The Fed will almost certainly repeat that its target interest rate will remain locked into the 0% to 0.25% range "for some time." In January policymakers noted that the economy had "weakened further," and monthly data since then show more weakness. They will most likely hold to their forecast that "a gradual recovery in economic activity will begin later this year." However, the Fed will surely repeat its warning that the downside risks to that forecast are "significant," and that there is also a risk that inflation could fall more than policymakers would like to see.

With traditional interest-rate policy on hold, attention is now on the Fed’s balance sheet and the programs aimed at supporting improved functioning of the credit markets. The Fed is unlikely to announce any new initiatives at the upcoming meeting. That’s partly because the two most recent major programs—the purchases of government agency securities and the newest effort to buy private-sector asset-backed securities—are still in their infancy. Policymakers will most likely want more time to evaluate their progress before rolling out any new efforts. With much work to do on its current programs, the Fed is unlikely to announce an initiative to begin purchasing Treasury notes and bonds, although policymakers are expected to state that such a plan remains a possibility for the future.

Of the current programs, the plan to purchase up to $600 in debt and mortgage-backed securities from federal agencies has already showed success in reducing fixed-rate conventional mortgage rates, but to date the Fed has bought only $90 billion of those securities. The other major program, the Term Asset-Backed Securities Loan Facility (TALF), which is set to buy up to $1 trillion in private-label asset-backed securities, gets up and running on Tuesday, Mar. 17. Both of these efforts are aimed at unclogging the credit markets by attempting to revive the securitization process—the packaging and selling of loans in secondary loan markets.

These programs have a good chance of success, say most analysts. By the end of last year, the private-sector secondary markets for mortgages and other consumer and business loans had essentially dried up. That contraction played a big role in the credit tightening that hammered economic growth last quarter, with continued stress on first-quarter growth. It was also a big reason why the Fed’s interest-rate cuts have been ineffective at loosening up financial conditions the way rate cuts have in the past. Up to last year, securitization had been responsible for about half of all credit flowing to households and businesses.

For now, investors will have to digest a lot more downbeat news on the economy, while they wait for the Fed’s efforts to show more results.

Here’s the weekly economic calendar, from Action Economics:

Top Economic Reports
Reports Date Time For Median Estimate Last Period
Empire State Index Monday, Mar. 16 8:30 a.m. March -30.0 -34.7
Industrial Production Monday, Mar. 16 9:15 a.m. February -1.0% -1.8%
Capacity Utilization Monday, Mar. 16 9:15 a.m. February 71.2% 72.2%
Producer Price Index Tuesday, Mar. 17 8:30 a.m. February 0.2% 0.8%
Producer Price Index (Excluding Food & Energy) Tuesday, Mar. 17 8:30 a.m. February 0.1% -1.0%
Housing Starts (Millions) Tuesday, Mar. 17 8:30 a.m. February 0.473 0.466
Consumer Price Index Wednesday, Mar. 18 8:30 a.m. February 0.4% 0.3%
Consumer Price Index (Excluding Food & Energy) Wednesday, Mar. 18 8:30 a.m. February 0.2% 0.0%
Current Account Balance ($Billions) Wednesday, Mar. 18 10:00 a.m. Q4 -$136.3 -$174.1
Philadelphia Fed Index Thursday, Mar. 19 10:00 a.m. March -32.5 -41.3
Leading Indicators Index Thursday, Mar. 19 10:00 a.m. February -0.3% 0.4%
Other Reports and Events
Reports/ Events Date Time For
Treasury International Capital report Monday, Mar. 16 9:00 a.m. January
NAHB Homebuilders' Survey Monday, Mar. 16 1:00 p.m. March
ICSC-UBS Store Sales Tuesday, Mar. 17 7:45 a.m. Mar. 8-14
Johnson Redbook Weekly Store Sales Tuesday, Mar. 17 8:55 a.m. Mar. 8-14
Federal Reserve FOMC meeting (First Day) Tuesday, Mar. 17  
EARNINGS: Adobe Systems (ADBE) Tuesday, Mar. 17  
EARNINGS: Darden Restaurants (DRI) Tuesday, Mar. 17  
Mortgage Applications Wednesday, Mar. 18 7:00 a.m. Mar. 8-14
Federal Reserve FOMC meeting (Second Day) Wednesday, Mar. 18 2:15 p.m. Statement
EARNINGS: Cintas (CTAS) Wednesday, Mar. 18  
EARNINGS: Discover Financial Servies (DFS) Wednesday, Mar. 18  
EARNINGS: FedEx (FDX) Wednesday, Mar. 18  
EARNINGS: General Mills (GIS) Wednesday, Mar. 18  
EARNINGS: Nike (NKE) Wednesday, Mar. 18  
EARNINGS: Oracle (ORCL) Wednesday, Mar. 18  
Initial Unemployment Claims Thursday, Mar. 19 8:30 a.m. Mar. 8-14
EARNINGS: Carnival (CCL) Thursday, Mar. 19  
SPEECH: Fed Chairman Bernanke Friday, Mar. 20 11:00 a.m.
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