US Focus

The FOMC announcement  (13 March) 

• FOMC policy meeting is expected to leave rates unchanged. 
• Market focus will be on comments on changes in the relative strength of the economy, changes in inflation worries, and whether the Fed is willing to undertake new options.
• Market expectations likely were raised by the March 7 Wall Street Journal article (unnamed sources) stating that the Fed is considering "sterilized" buying of long-term bonds-shifting the average maturity of the Fed's holdings and offsetting the longer-term purchases with sales elsewhere on the balance sheet.
• But several District presidents oppose QE3 and likely will raise questions about this new idea. Key questions likely would be whether the Fed will lose money on these transactions as interest rates rise. And if the Fed will lose money, will that impede how quickly the Fed can unwind its balance sheet as the economy eventually heats up. And even will potential Fed losses have an impact on the federal deficit (annual Fed profits are handed over to the Treasury). The cost/benefit analysis for the alleged new Fed option may not play out well.

Producer Price Index (15 March) 

• The PPI rebounded 0.1 percent in January, following a 0.1 percent dip the prior month. The core PPI jumped 0.4 percent, following a 0.3 percent rise in December. By major components, energy declined 0.5 percent in January, following a 0.4 percent decrease. Food decreased 0.3 percent in the latest month. Upward pressure in the core came from pharmaceuticals, light trucks, and tobacco products.

Consumer Price Index (16 March)

• The consumer price index in January rose 0.2 percent, following no change in each of the prior two months. Excluding food and energy, the CPI firmed to a 0.2 percent increase from December's 0.1 percent increase. Energy rose only 0.2 percent, following a 1.3 percent decrease in December. Food price inflation held steady at 0.2 percent. Within the core, upward pressure came from apparel, recreation, tobacco, and medical care. In contrast to these increases, the index for used cars and trucks declined for the fifth month in a row and the index for airline fares dipped in the latest month

From Bloomberg