We wanted to re-run this commentary from Deutsche Bank, that we ran yesterday, ahead of today’s big FOMC meeting:The conclusion of the first FOMC meeting of 2011 will be closely scrutinized by market participants trying to glean any shift in sentiment as a result of either economic developments or the new rotation of voting members for 2011. Since it is a two day meeting, policymakers will prepare forecasts for growth, inflation and unemployment to be presented at the Chairman’s Humphrey-Hawkins testimony in mid-to-late February. The tone of the economic data has firmed somewhat since the December 14 meeting, although the pace of job creation remains stubbornly slow. Hence, the meeting statement may have a slightly upgraded economic assessment—acknowledging recent data on consumer spending and factory activity—and it could even make a nod to slightly firmer inflation news; but it will continue to acknowledge labour weakness.
Recall the prior statement contained the following labour market characterization: “Employers remain reluctant to add to payrolls.” One of the key pieces of economic data which could have swayed the tone of the January meeting statement was the December jobs report; however, that data showed the pace of hiring was little changed last month. While the risks to the statement appear to tilt in one direction, we ultimately expect any tinkering to be relatively minor. We continue to emphasise that a stronger labour market will be an essential catalyst for monetary policymakers’ attitudes to shift. There are two employment reports ahead of the next FOMC meeting (on March 15), so there could be a more marked shift between January-March compared to December-January. Presently, we are forecasting +125k for January payrolls—as once again we are cautious about an outsized weather impact on the data. Perhaps the most notable development when the statement is released this afternoon will be the vote count given the new mix of voting FOMC members in 2011.