Wednesday, March 18, 2015
FOMC; Transparency Be Damned
10 year Treasury yields are 15 bps lower and Eurodollar Future EDM7 (2017) is higher by 25 bps implying that the market was particularly surprised by the Fed's statement and SEP release. To this point, it has been expected that market participants would generally understand what the Fed interpretation of economic and inflation progress was on the approach of the FOMC meeting. Former Fed Chair Bernanke once noted that the market price movement immediately following the FOMC statement is a good guide as to how transparent the Fed has been, with less movement indicating the Fed was well understood. It is apparent that economic agents were not expecting the extent by which the Fed individuals (collectively) lowered their expectation for the path for policy rates and reduced their longer run expectation for unemployment. If this form of communication is intended to imply Fed independence, congratulations go to the Fed as they were well misunderstood. The upshot of volatility around FOMC decision dates is to be welcomed. It may not always be that market participants are led to believe the Fed will be less accommodating then the FOMC (and SEP) proves. That too should be fun. Welcome the new Fed Transparency?