Yesterday’s FOMC decision brought no surprises as it was announced the Fed will keep rates at the current 0.00 – 0.25% level for an extended period of time. However, newsworthy was the fact that investors experienced an unprecedented move by the Federal Reserve, when Fed Chairman Bernanke held the first ever press conference in conjunction with the FOMC decision. Bernanke spoke to member of the press, answered questions and reiterated what was mentioned in the FOMC statement:
· The economic recovery is proceeding at a moderate level.
· Inflation has increased recently, but long term expectations remain stable.
· The FOMC will keep a close look at any changes in inflation and inflation expectations
· The Fed will complete “QE2” in June.
· The target rate will remain exceptionally low for an extended period.
Treasury prices are reversing yesterday losses as investors react to the economic data released this morning. The 2-year has gained 1/32 so far to yield 0.62% while the 5-year note is 8/32 higher yielding 2.00%. Both the benchmark 10-year note and the long bond have increased 9/32 to yield 3.32% and 4.43% respectively. The Commerce Department announced that Gross Domestic Product reported a 1.80% increase for the 1st Quarter of this year. Analysts had estimated that the economy would grow higher, by 2.00% during this period. The lower than expected reading can be partially attributed to a weak readings in government consumption at -5.20% from -1.70%, final sales at 0.80% from 6.70%, and personal consumption at 2.70% from 4.00%. Net Exports also registered a deterioration from the previous quarter widening to -$399.7 billion from -$397.7 billion. Gross private investment was the only major component that showed improvement growing 8.50% vs. -18.70% in 4Q2010, primarily due to a strong increase of 11.60% on equipment and software.
On other economic news, the Department of Labor released its weekly Initial Jobless Claims report this morning showing that claims rose last week to 429,000, analysts expected claims to drop below the 400,000 mark to 395,000. Nevertheless, Continuing Claims were lower than expected at 3.641 million versus the forecast of 3.680 million. The less volatile 4-week average number of initial claims was 408,500, a 9,250 increase from the previous week. Finally, Pending Home Sales will be released at 9:00am CDT. Pending Home Sales, which tracks the number of home re-sales under contract, is expected to have increased 1.50% for March. This index is often used as a gauge to predict future home sales activity as these sales typically become existing home sales one or two months later.
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