Weather and Fed -- An Unusual Combination
Apr 28, 2011
What Traders are Talking About:
* Lots of attention on weather. Decent rains fell on dry areas of southern and western Kansas and much of Oklahoma over the past 24 hours. Texas remained dry. Rains have vacated the southern and eastern Corn Belt after pounding the region in recent days. Flooding is an issue in some areas. Forecasters are generally leaning toward a slightly drier pattern over the western Corn Belt for the next seven to 10 days, but there is still risk of heavy rainfall in southern and eastern areas of the region. Rains have fallen and more are forecast for dry areas of western Europe the next couple days..
The long and short of it: Rains in Kansas and Oklahoma should help the winter wheat crop there, but crop scouts say the relief may have been too late for some areas. The weather outlook is better for the western Corn Belt, but field work will remain limited amid cold, soggy soils. Heavy rains and flooding remain a concern in the southern and eastern Corn Belt. The rains in western Europe will provide temporary relief, but won't likely be enough to end dryness concerns in the region.
* Fed serves up no major surprises, markets continue recent price moves. Aside from a greater focus on inflation, which was anticipated, the Fed changed very little in its outlook for the economy and monetary policy following the two-day Federal Open Market Committee meeting and Ben Bernanke's first post-meeting press conference Wednesday. The result, markets continued recent price trends -- The U.S. dollar index extended losses to hit the lowest level since the first week of Aug. 2008; gold futures posted an all-time high; the stock market firmed; and bonds were pressured.
The long and short of it: The Fed indicated its in no hurry to raise interest rates and plans to end its $600 billion bond-buying program at the end of the current quarter, as scheduled. Basically, the Fed stayed the course.
* QE3 ahead? Not likely. The prospect of additional quantitative easing when the current round (QE2) is done in June was addressed at Bernanke's press conference. His response: "The trade-offs are getting less attractive at this point. Inflation has gotten higher. Inflation expectations are a bit higher. It is not clear we can get substantial improvements in payrolls without some additional inflation risks. In my views, if we're going to have success in creating a long-run, sustainable recovery, we're going to have to keep inflation under control."
The long and short of it: The Fed appears far from pushing the panic button on inflation (read that: having to raise interest rates), but there is enough concern with rising prices to keep the monetary policy board from another round of quantitative easing -- at least for now.
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