Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

The Federal Open Market Committee (FOMC) left the target range for the federal funds rate unchanged (from 0% to 0.25%) and repeated that economic conditions are likely to warrant maintaining an exceptionally low level of the federal funds rate “for an extended period.” The FOMC noted that “economic activity has continued to strengthen and the labor market is stabilizing” (compared to January’s “the deterioration in the labor market is abating”). Business spending on equipment and software “has risen significantly” (compared to “appears to be picking up”). Once again, St. Louis Fed President Thomas Hoenig dissented regarding the “extended period” language.

The bond market had little trouble absorbing Treasury supply (3- and 10-year notes and 30-year bonds). Equities meandered to a mixed finish.

A couple of days later, the financial markets began speculating that the Fed’s Board of Governors could approve a hike in the discount rate (the rate the Fed charges banks for overnight borrowing) at some point between FOMC meetings. A discount rate increase is coming sooner or later and the Fed’s Board of Governors could act at anytime. However, as with the February 19 hike in the discount rate, such a move would be part of the normalization of monetary policy and would not be expected to lead to tighter credit for consumers and businesses.

There was a lot of economic data, but the bulk of it had little consequence for the financial markets. The Consumer Price Index (CPI) was flat in February, reflecting a dip in energy prices (mostly gasoline). Ex-food and energy, the CPI rose 0.1% (+1.3%), restrained by an unchanged reading in shelter (following a 0.5% decline in January, down 0.4% year-over-year). Other measures of core inflation, such as the Cleveland Fed's median CPI (half of the weighted components have lower rates, half have higher rates) and the 16% trimmed mean index – which ignores the lowest 8% and highest 8% of price changes &ndash continued to trend lower.

Next week, the economic calendar thins out. Home sales figures and the durable goods data are expected to reflect some impact from the poor weather in February. On Monday, markets could react to the expected Sunday vote on healthcare reform.

Indices

	Last	Last Week	YTD return %
DJIA	10779.17	10611.84	3.37%
NASDAQ	2391.28	2368.46	5.38%
S&P 500	1165.83	1150.24	4.55%
MSCI EAFE	1578.60	1563.33	-0.14%
Russell 2000	681.61	677.22	8.99%

Consumer Money Rates

	Last	1-year ago
Prime Rate	3.25	3.25
Fed Funds	0.25	0.25
30-year mortgage	5.04	5.15

Currencies

	Last	1-year ago
Dollars per British Pound	1.527	1.397
Dollars per Euro	1.363	1.312
Japanese Yen per Dollar	90.220	97.980
Canadian Dollars per Dollar	1.012	1.271
Mexican Peso per Dollar	12.461	14.103

Commodities

	Last	1-year ago
Crude Oil	82.20	48.14
Gold	1127.80	893.18

Bond Rates

	Last	1-month ago
2-year treasury	0.97	0.92
10-year treasury	3.69	3.79
10-year municipal (TEY)	4.62	4.78

Treasury Yield Curve – 3/19/2010

S&P Sector Performance Charts – 3/19/2010

Economic Calendar

March 23	—	Existing Home Sales (February)
March 24	—	Durable Goods Orders (February) New Home Sales (February)
March 30	—	Consumer Confidence (March)
April 1	—	ISM Manufacturing Index (March)
April 2	—	Good Friday (stock market closed; bonds open until noon) Employment Report (March)
April 6	—	FOMC Minutes (March 16)
April 27	—	FOMC Meeting