by Calculated Risk on 8/10/2010 12:41:00 PM

I think there are three things to look for in the statement today at 2:15 PM ET.

1) How will the statement discuss the recent economic slowdown?

From the June 23rd FOMC statement:

"Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. ... [T]he Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time."

I expect the statement today to acknowledge the weaker data since the last meeting.

2) Will they express more concern about deflation?

Last month:

"[U]nderlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time."

Those sentences might remain the same.

3) And the BIG one: Will the FOMC change their reinvestment strategy?

Currently the FOMC is not reinvesting maturing MBS. This is passively shrinking the Fed's balance sheet, and probably at a faster rate than expected because of recent refinance activity.

The Fed might decide to reinvest the maturing MBS. If they do, the questions are: For how long (end of 2011)? And what will they buy (probably Treasury Securities, but what duration)?

My guess is there will be no change to the current MBS run off strategy.