December 14 Federal Open Market Committee meeting will be the last in 2010 the Federal Reserve meeting, which should not have fireworks, the statement may also November 3 no significant difference. Of course, inside the Fed will not rule out a large-scale asset purchase program on the controversy arose.

In the last few weeks after the meeting, the Fed chairman in most areas in public have the opportunity to express views on the LSAP scheme. Although according to some nuances to determine support or opposition to the plan is not fair, but 12 members that there are some significant differences.

However, the FOMC’s policy is still the short term is to maintain the 0% to 0.25% of the federal funds rate target unchanged, continue to buy pre-paid is about to expire and the current investment securities portfolio, and in the second quarter of 2010 to buy 600 billion before the end of long-term U.S. government bonds.

We expect that this year the last FOMC meeting will confirm the previous long-term bonds to buy 600 billion U.S. dollars, and the notice time frame the initial announcement. The last time the Fed said in a statement after the meeting, “The Committee will periodically evaluate the information obtained and the progress of the purchase of securities purchased on the scale of assets and, if necessary, adjust the plan to best achieve maximum employment and price stability objectives” . However, in the early stages of planning, economic data or financial market situation and will not lead to any changes.

This time, the Fed may be admitted after the announcement in early November, to keep interest rates at a low level of so-called objective has been started to challenge. Many analysts believe the market has digested the Fed’s intentions, the purchase of the bonds longer than even the Federal Reserve announced.

LSAP program announcement in the days after, the market there have been some preliminary whole tone, followed by the U.S. bond market once again the impact of European sovereign debt problem, at present, this situation seems to subside. However, the end result is that the Fed did after months of efforts to provide more lenient measures, so the Fed will be judged from the perspective of long-term plans and evaluate the success of LSAP. Therefore, it should not be relaxed too early for the second time to judge the effectiveness of policies.

Assessment of the U.S. economy and inflation

This time the Federal Reserve assessment of the economy and inflation will not have too many changes in wording. Such as the last report said, “the September Federal Open Market Committee meeting confirmed the information obtained after the output and employment continued to slow the pace of recovery. Household spending gradually increased, but still subject to high unemployment rate, slow income growth, shrink real estate wealth and tight credit constraints. Although the rapid growth of less than earlier this year, but the enterprises in the equipment and software spending increased investment in non-residential areas are still weak. employers are still reluctant to increase the staff. Housing starts are still in very low levels. Although long-term inflation expectations remain stable, but in recent quarters, or indicators to measure underlying inflation fell in trend. ”

In this month’s meeting of intermittent period, the U.S. housing market data seems to deteriorate, but the commercial sector, the situation is improving. Due to the base is relatively low, so the rise in consumer confidence. Labor market data were mixed, the number of applications unemployment down, but weak employment growth, and unemployment remain high.

U.S. inflation data is still at a very modest level. After falling in recent months, the inflation expectations have edged higher. Overall inflation is expected to remain low.

Dual objectives and future prospects

In the last statement, FOMC’s decision to LSAP and “to maximize employment and price stability,” linked together. The Fed will always consider their policies on the twin goals of these two aspects, but the last meeting as a statement of the policy prescriptions of these two problems: a sluggish economy can not create enough employment to the unemployment rate to the satisfaction the rate of decline, and mild inflation may turn into deflation.

After taking into account the FOMC dispute resolution, especially for fear of future inflation, this time the FOMC meeting that some tools may be used to recover the first round of the asset purchase. Fed officials have been saying that the central bank has not ignite inflation in the case of a large balance sheet compression tools. This was true regardless of individual decision-makers agree or asset purchase plan.

As noted above, December 14 meeting will be the last meeting in 2010, while next year’s vote will change. However, we expect the Fed at least the next few months the policy will be maintained. Kansas City Federal Reserve Chairman Xi Huoen meeting at this time should be cast out of the 8 th consecutive vote objection, which is his current post in the FOMC’s last round of voting. FOMC voting member of the next round in January 2011 from 25 to 26-day meeting to vote.

From the next round of committee voting situation, the Committee members more strongly against the LSAP scheme is highly likely. Next round of voting members include the Chicago Fed President Evans, the Philadelphia Federal Reserve Chairman Xipuluosuo, Dallas Fed President Fisher and Minneapolis Fed President.

Of course, this does not mean that the Fed will soon depart from the existing plan. If you have a lot of evidence of accelerating economic recovery, it does not preclude the Fed will reduce the size of asset purchase, but before the end of the second quarter of next year, the Fed can not suspend the program.

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