At BNP Paribas’ New York trading desk, Julia Coronado, the bank’s chief North America economist, watched as three words helped undermine the Federal Reserve’s latest attempt to aid the U.S. economy: “significant downside risks.”
According to Bloomberg the phrase, tucked into a seven-paragraph policy statement about the Fed’s plans to move $400 billion into long-term debt from short-term bonds, warned about the economic outlook while offering no clue on the risks’ severity. The Sept. 21 statement said Fed officials expected “some pickup” in the pace of recovery, though unemployment would “only gradually” decline.
Before they acted last month, members of the Federal Open Market Committee saw far more specific predictions. They had “the Teal Book,” an economic forecast that Fed Chairman Ben Bernanke’s staff of 50 or so Ph.D. economists produces every six weeks -- with numeric forecasts for unemployment, growth and inflation down to the decimal point. The document, so influential it’s been called the “13th member” of the 12- person FOMC, is withheld from the public for five years -- unlike the forecasts of other central banks.
Without such specifics, Fed watchers like Coronado, are left to parse the qualitative language of Fed statements. Last month, investors decided the words meant it was time to buy bonds and sell stocks; the Standard & Poor’s 500 Index closed 3 percent lower that day…..
Read more at http://www.bloomberg.com/news/2011-10-27/fed-refuses-to-share-internal-view-traders-see-underlying-significant-risk.html
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