The Federal Reserve’s Open Market Committee begins its two-day monetary policy meeting today. Investors expect policy to remain accommodative well into 2010 so it’s a virtual certainty that the Fed Funds rate will remain at the historic low of zero to 0.25%, but with Ben Bernanke calling the recession “over” last week, many believe the accompanying statement could include some important changes.

Investors also want an update on whether the Fed will continue to purchase mortgage-backed securities. So far, the Fed has purchased $862 billion of MBS, part of an effort to keep mortgage rates down and invigorate the housing market. With home purchases showing broad improvement over the past four months, there is talk that the Fed will choose not to fulfill its bidding for a total of $1.25 trillion MBS.

Laurence Meyer, a former governor at the Fed, recently told Forbes: “The committee will most likely extend the life of the program, but leave its overall capacity unchanged, effectively reducing the pace of its remaining purchases.”

Other questions about how the Fed’s “exit strategy” also remain unanswered. Further details are unlikely to come out in the Fed’s short statement, but “the dialogue on developing a framework for exiting the current quantitative easing programs will continue at the meeting,” noted analysts from TD. 

Looking ahead to today, the day is short on economic news. Highlights include third-tier retail sales data (8:55), the Richmond Fed’s regional manufacturing survey (10:00), and the FHFA home price index (10:00). 

Ahead of the releases, S&P 500 futures are trading 0.7% higher, more than enough to retrace the 0.3% decline yesterday. Ahead of the $43 billion 2-year note auction this afternoon, Treasuries are slightly softer with the benchmark 10-year yield at 3.48%.

Key Releases Today:

10:00 ― The FHFA House Price Index is based on single-family home data from Fannie Mae and Freddie Mac. Recently the index has ticked upwards, suggesting firmer prices after many months of deflation. Home prices went up 0.6% in May and 0.5% in June, and in July they are expected to go up 0.6% again. The report doesn’t get much market play, as investors prefer the Case-Shiller index of prices, but traders will be starved of data on Tuesday so it could have some impact.

“Although the FHFA index is not a straight apples-to-apples comparison with the more popular Case-Shiller index, the two measures follow each other closely enough ― 77% correlation for monthly moves ― to provide a fair heads-up for the latter’s release next Tuesday,” said Sal Guatieri, economist at BMO Capital Markets. 

Treasury Auctions:


  • 11:30 ― 52-Week Bills
  • 1:00 ― 4-Week Bills
  • 1:00 ― 2-Year Notes