Jackson Hole: No Bernanke Surprises


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10:28AM  : 
Highlights From Jackson Hole
(Reuters) – On economic growth, inflation outlook:
“The recent data have indicated that economic growth during
the first half of this year was considerably slower than the
Federal Open Market Committee had been expecting, and that
temporary factors can account for only a portion of the
economic weakness that we have observed. Consequently, although
we expect a moderate recovery to continue and indeed to
strengthen over time, the Committee has marked down its outlook
for the likely pace of growth over coming quarters. On what the Fed’s recent policy decision means:
“We indicated that economic conditions — including low
rates of resource utilization and a subdued outlook for
inflation over the medium run — are likely to warrant
exceptionally low levels for the federal funds rate at least
through mid-2013. That is, in what the Committee judges to be
the most likely scenarios for resource utilization and
inflation in the medium term, the target for the federal funds
rate would be held at its current low levels for at least two
more years.” On what other tools the Fed has:
“In addition to refining our forward guidance, the Federal
Reserve has a range of tools that could be used to provide
additional monetary stimulus. We discussed the relative merits
and costs of such tools at our August meeting. We will continue
to consider those and other pertinent issues, including of
course economic and financial developments, at our meeting in
September, which has been scheduled for two days (the 20th and
the 21st) instead of one to allow a fuller discussion. The
Committee will continue to assess the economic outlook in light
of incoming information and is prepared to employ its tools as
appropriate to promote a stronger economic recovery in a
context of price stability.”

9:08AM  : 
Bond Markets Shift in Favor of More Bullish “Middle Ground” After GDP
After a fairly lackluster GDP this AM, MBS and Treasuries traded sideways for a bit, but have rallied in the past few minutes. That comes on the heels of what were already slightly stronger opening levels. As SP futures approached the 1150 technical level, MBS and 10yr yields did the same, 103-28 for Fannie 4.0’s and 2.17+ for 10’s. Treasuries went out the door just over 2.23 yesterday, the exact mid-point between important technical boundaries at 2.06 and 2.40 (hat tip to the Dashboard’s Brent B on being the first to comment on this yesterday). The AM data and trading shifts yield to the next notch lower in yield on the technical ladder: 2.17-2.18. Additionally, 103-28 is a well traveled pivot of late having supported prices almost all day on the 23rd and then acting as resistance ever since that day’s Treasury auction. The next major data comes in just under an hour with Consumer Sentiment at 9:55am, but most importantly, Bernanke at Jackson Hole at 10am. Lenders should be able to pass on some gains this morning depending on how sensitive they are to the J-Hole-Related uncertainty. Implied volatility in the options market (like fixed income’s very own .VIX in a way) is in line with recent highs, which, for lack of a better term, are very high. That’s likely a factor in Treasuries outpeforming MBS somewhat this AM and also raises the possibility of more hesitant pricing or even delayed rate sheets until the first shockwaves are felt from Jackson Hole.

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