FOMC Releases Latest Statement

10-Yr T-Note: -04/32..1.485%.. USD-JPY: 78.26.. EUR-USD: 1.2257

FOMC Excerpts:

"Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year."

"Growth in employment has been slow in recent months, and the unemployment rate remains elevated."

"Household spending has been rising at a somewhat slower pace than earlier in the year."

"Despite some further signs of improvement, the housing sector remains depressed."

"Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable."

"The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually."

"The Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook."

"The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate."

"The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates 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 late 2014."

"The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities."

"The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

"Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate."

The Federal Reserve said it will ease policy further if necessary to boost the weakening expansion and reduce unemployment.

The Federal Open Market Committee "will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability," it said today in a statement at the end of a two-day meeting in Washington. "Economic activity decelerated somewhat over the first half of this year."

Chairman Ben S. Bernanke held off on stepping up record stimulus even as consumer spending flagged, economic growth slowed and unemployment persisted at 8.2%. Before their next meeting starts 12 September, Mr. Bernanke and his colleagues will assess reports on unemployment in July and August, and the European Central Bank may take steps to ease Europe's debt crisis at a meeting tomorrow.

"They were as blunt as you can get without actually pulling the trigger," said Dan Greenhaus, chief global strategist at BTIG LLC in New York. "They're saying, 'Hey, things are not good and we're an inch away from easing.'"

Stocks erased gains after the statement. The Standard & Poor's 500 Index fell 0.2% to 1,376.40 at 2:47 p.m. in New York. The yield on the 10-yr T-Note rose to 1.52% from 1.47% late yesterday.

The FOMC said in today's statement that "household spending has been rising at a somewhat slower pace than earlier in the year."

Hollande tells Obama EU will act on Summit decisions

French President Francois Hollande told his US counterpart Barack Obama in a telephone call that European Union member states aimed to enact decisions taken at an end-June summit soon, Hollande's office said Wednesday.

"The devices and means detailed at the 28-29 June EU summit must be put into effect as soon as possible," the president's office said in a statement.

The two leaders had an "indepth" discussion on the world economy and Eurozone crisis and also talked about the conflict in Syria and agreed on the urgency of a political transition to end the violence.

US raises pressure for Eurozone crisis action

The United States raised pressure on Eurozone leaders to take decisive action to solve the region's debt crisis, notably by lowering troubled members' borrowing costs, on the eve of a crucial European Central Bank meeting.

US Treasury Secretary Timothy Geithner said the euro zone must take steps including "bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need".

He made the comments in an interview with Bloomberg Television recorded in Los Angeles Tuesday, a day after he flew to Germany to meet Finance Minister Wolfgang Schaeuble and ECB President Mario Draghi. They were broadcast on Wednesday.

Italy and Spain, the euro zone's third and fourth largest economies, could lose access to credit markets as the risk premium that investors demand to hold their bonds rather than safe-haven German debt has spiraled to levels considered unsustainable in the long term.

Italian Prime Minister Mario Monti said Draghi's pledge last week to do whatever it takes to preserve the euro were "bold and appropriate", and said European leaders were weighing joint intervention by the ECB and the euro zone's rescue funds.

He predicted that the future permanent rescue fund, the European Stability Mechanism (ESM), would "in due course" be granted a banking license so it could tap ECB funds to buy almost unlimited amounts of bonds.

However, German Vice-Chancellor Philipp Roesler rejected pressure for the ECB to step in and cap the borrowing costs of troubled euro zone states, saying the central bank should stick to fighting inflation and not ease market incentives for reform.

"If you take away the interest rate pressure on individual states, you also take away the pressure on them to reform," Roesler, economy minister and leader of the Free Democrats, junior partners in Chancellor Angela Merkel's centre-right coalition, told reporters in Berlin.

He also reasserted Germany's firm opposition to letting the ESM borrow from the central bank, dubbing that "the road to an inflation union".

Draghi's comments last week stirred speculation that the ECB might take more radical steps when its policy-setting Governing Council holds its monthly meeting on Thursday.

Geithner said Schaeuble and Draghi had walked him through plans they were putting in place to try to solve the crisis, but he cautioned against expecting immediate action.

Past financial crisis showed that the longer it took to address the issues, the more they cost.

"I believe they understand that. That's why they've signaled they are prepared to move further. Now again, this is going to take time," he added.

Market expectations of a major ECB move this week have faded somewhat after a spike following Draghi's comments last week. Those traders and investors who expect action on Thursday would sell the euro and European shares and drive up Spanish and Italian bond yields if the ECB did nothing.

Nick Parsons, head of markets strategy at nabCapital in London, said the euro could fall a couple of US cents from current levels, while bond market analysts expect Spanish yields to reach new euro-era highs if the ECB does not act.

At the heart of the Eurozone crisis, Greek political leaders said on Wednesday they had reached agreement on 11.5-B Euros of austerity cuts demanded by the country's lenders. Failure to agree the cuts threatened a sequence of events that could have led to Greece's exit from the single currency.

The head of one of its lenders, Christine Lagarde at the International Monetary Fund, promised to stand by the country and "never leave the negotiating table", while calling on its leaders to do more with structural reforms and by improving tax collection.

She also warned that uncertainty over the future of the euro zone was clouding the horizon for the Spanish economy.

Mr. Monti, who is touring Europe to press for action to bring down Rome's borrowing costs, made his pitch to euro zone hardliner Finland on Wednesday, saying Italy did not need an assistance program but might in future need "a breathing break" from high interest rates.

"We have in mind a possible intervention through EFSF, ESM and the ECB," Monti was quoted as saying by Finnish daily Helsingin Sanomat before he met Prime Minister Jyrki Katainen.

Mr. Katainen told a joint news conference that interest rates were too high in some European countries such as Italy, and that sovereign bond markets were not properly assessing their economic situation.

Central bank sources have told Reuters that intervention could be at least five weeks away because Draghi's comments had not been agreed in advance with the Governing Council, and other elements must first fall into place.

The sources said the ECB could revive its mothballed sovereign bond-buying program in tandem with the euro zone's rescue funds, but Spain would first have to request assistance, which it has resisted so far.

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Credit ratings agency Standard & Poor's affirmed Spain's sovereign BBB+/A-2 rating Wednesday, citing its commitment to economic and fiscal adjustments, but warned it risks losing investment grade if euro zone support fails to boost confidence.

Euro zone leaders would have to agree to the rescue funds buying up government bonds, and the German Constitutional Court would have to uphold the legality of the bloc's permanent rescue fund in a ruling due on 12 September.

The leaders have spent the past week issuing statements promising to take whatever steps are necessary to rescue the currency, but none has raised expectations as high as Draghi, who heads the only federal European institution able to act swiftly and decisively.

However, the ECB is divided, with Germany's Bundesbank opposed to reviving government bonds or giving the euro zone rescue fund a banking license.

Draghi met Bundesbank chief Jens Weidmann privately earlier on Monday to try to reconcile differences on what action the bank might take. Neither bank would comment on the meeting.

The Bundesbank released on Wednesday a 29 June interview for an in-house publication in which Weidmann said governments expected too much from the central bank, and what they wanted did not always make economic sense.

"Politicians overestimate the central bank's capacity and place too many demands of it," he said.

"Whether it's about interest rates or any sort of special measures, in the end it always comes down to the same thing: trying to rope the central bank into meeting fiscal policy objectives."

Weidmann said the Bundesbank would continue to defend its positions firmly "so that the (European) monetary union remains a stability union".

With the economy slowing and inflation under control, other options on the ECB's radar screen include a possible further cut in interest rates and a further loosening of rules on the collateral it will accept to lend funds to banks.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.