Wednesday, May 31, 2006

FOMC Minutes About As Clear As Mud

The FOMC minutes were just released, and the initial reaction from the market was a quick 30 point drop in the Dow. Of course, the market is already starting to bounce back. So by the time it closes today, it's anyone's guess where we will end up.

The FOMC said they discussed the full range of options, from no hike to a full 50 basis point one. The also said that inflation expectations are contained, and that forecasts for slower growth this year are not yet clear. Last, they said that rising price expectations could well reverse.

So basically there isn't much to glean from these minutes versus the previous commentary. The fed funds futures are now pricing the odds of a June hike at 65%. I think it will be more like 50% by the time the June FOMC meeting rolls around (end of June).

For its part, the 10-year yield is up today to 5.10%. It peaked 2 weeks ago at 5.19%.


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