The Market Awaits FOMC Meeting

The major event next week is the 2-day FOMC meeting on September 20-21. According to Fed Chairman Ben Bernanke stated at Jackson Hold Symposium, it was originally a 1-day meeting but was rescheduled to 2 days for discussing 'the possible costs and benefits of various potential tools' to stimulate the economy. After pledging to keep the federal funds rate at exceptionally low levels for at least through mid-2013, the remaining options the Fed can take include: lowering interest rates paid on excess reserve, shifting the composition of the balance sheet to longer maturity, formalizing an inflation target, indicating explicit interest rate ceilings for longer-term Treasury debts (with an ingredient of asset buying) and outright bond purchases (i.e. QE3). Notwithstanding oppositions from several hawks, the Fed will likely announce something called 'operation twist' -increasing the average maturity of securities holdings by swapping holdings of lower maturities Treasuries with longer ones. While it's questionable on how much the economy can benefit from such a means, the Fed is not likely to pursue an outright bond purchases given rising inflationary pressures.

See the original post here: 
The Market Awaits FOMC Meeting