President Obama is meeting bankers and push them to lend. However, if he is successful, the lending will make the volecity of money faster which will worry the FED. The Fed may have to pay higher interest rate on reserve and keep banks from lending. Politically, it is going to cause outrages. So the tool for Fed to increase interest rate on reserve is a non-starter.
My forecast for Fed meeting this week
1. Will keep interest rate the same
2. Will keep the language of keep rate low for extended period
3. Will extend the MBS purchase beyond Apr. 2010 and reduce the amonunt it purchases. This will give the market a signal that the Fed is ready to exit but mindful of potential problem. So it wants the flexibility.
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