Market Talk

Not an 'exceptionally' chatty bunch, that Fed, but mind what they say all the same.

The two-day FOMC meeting begins today and based on all the discussion on exit strategies from Fed officials to financial journalists, investors should closely watch tomorrow’s statement and see if any hints are dropped on the Fed’s next move.

Almost a month ago Fed Chairman Ben Bernanke said the central bank will raise rates when the economy recovers, a pretty ambiguous statement as he didn’t say what would entail a recovery and didn’t offer a time frame. GDP rose 3.5% in 3Q, is that enough of a recovery to raise rates?

Not likely. As we detailed earlier, don’t expect the Fed to boost rates until after unemployment peaks. In the early 1990s, the Fed waited more than a year and a half after the jobless rate peaked before raising rates. And after unemployment peaked in 2003, the Fed waited a year to boost rates.

Currently, unemployment is still on the rise and doesn’t seem close to peaking. October’s nonfarm payrolls report is expected Friday and analysts are expecting to see another 175,000 jobs lost.

“I do not believe that the FOMC will significantly tweak the statement and leave an impression that a tightening of monetary policy is imminent,” Across The Curve blogger John Jansen says. “With the personal belief that the Treasury and Federal Reserve are working in tandem to revive the economy, I hold it unlikely that the FOMC would take any steps which would undermine a very fragile recovery.”

While it seems fairly certain rates will remain near zero and the Fed likely won’t raise them in 2009, keep an eye on minor changes in tomorrow’s statement.

“Exceptionally” is a key word to watch, according to Miller Tabak equity strategist Peter Boockvar. The Fed’s last statement said rates would stay at “exceptionally low levels” and exist for “an extended period.” But removing “exceptionally” from the statement would represent a crucial change, Boockvar says.

“With the economy still fragile and a long ways away from a normalized rate, we know they will stay low for awhile, it’s just a question of how low,” Boockvar says.