Daily Clueless Musings 6/22 FOMC

The Fed has lowered (yet again) it's GDP growth and job recovery forecast. However the Committee anticipates the recovery will "pick up in coming quarters." The slowdown was thought to reflect factors that are "in part" temporary, particularly the rise in energy prices and the Japanese supply chain disruptions. When asked during the press conference what does the “in part” imply, Bernanke expressed relatively low conviction, saying “We don't have a precise read on why this slower pace of growth is persisting” . Near term core PCE is revised higher by 0.2%. QE 3 is the hidden theme today. Market has been hoping for some hints on the possibility of QE3. Both Eurodollar futures and risky assets traded higher in the morning. Bill Gross tweeted and talked on CNBC on the idea that QE3 is likely to take the form of short term interest rate cap. Although Bernanke did not shut the door on QE3, he current condition does not warrant new round of asset purchasing, as the Securities purchases were intended, in part, to end risk of deflation ( Ben gave some lengthy explanation on how the current condition is different from last year). At the same time, his remarks hinted that the FOMC has in fact discussed easing options, which include: 1) securities purchases, which could be structured in various ways; 2) a cut in the interest rate on excess reserves; 3) guidance on how long the Fed will wait to sell securities; and 4) or “a fixed date to define extended period”. Market disappointed. Stocks traded lower and futures broke after Bernanke concluded his press conference.