Following a dizzying 33% drop in new home sales yesterday, plus a more dovish statement from the Federal Reserve, investors have become worried about the prospects for deflation and the sustainability of the economic recovery.

Ninety minutes before the opening bell, Dow futures are down 64 points to 10,175 and S&P 500 futures are down 8.00 points to 1,079.50.

The 2-year note has fallen 3.5 basis points to 0.645% and the benchmark 10-year Treasury note is 5.6 basis points lower at 3.068%.

NYMEX light crude oil is down 0.56 to $75.81 while Gold is down $3.40 to $1,230.70 per ounce. After the FOMC meeting yesterday, Michael Gregory from BMO said “the risk of the Fed staying on hold deep into 2011 (or dare we say until 2012) is mounting. And, peaking around the corner is a still very small, but no longer ignorable, risk that more quantitative easing might be required to ensure that America steers clear of deflation.”

Investors and economists were spooked in particular by this line from the Fed: “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”

While equities in Europe, Asia, and the U.S. sell-off, the dollar is mixed. Against the Euro the dollar is up .20 cents to 1.2291, but it is down 0.52 cents against the Yen and .30 cents again the pound.

Key Events Today:

8:30 ― Expectations are divided for Durable Goods. The “consensus” is for a 0.5% decline in May, but predictions range from -2.5% to +1.5%, according to Bloomberg. In April the index leapt 2.8% on account of a 16% increase in transportation orders, a 228% surge in orders for non-defense aircraft, and a 7.2% rise in orders for motor vehicles and parts.

Economists at Nomura are predicting a 2.5% cut as aircraft orders reverse earlier gains and industrial orders get hit by weaker metal prices. 

“Boeing booked just five new orders during the month, down from 34 in April,” they noted. “We believe this will translate into a 75% decline in the dollar value of aircraft orders. Lower metals prices should also reduce the nominal value of primary metals orders and shipments. We expect core orders (non-defense capital goods orders excluding aircraft) to show another healthy gain, however, indicating that business demand for investment goods remained strong.”

Economists from BBVA point out, however, that aside from transportation order, new orders should see “a widespread increase, which would point to strengthening private demand.” 

8:30 ― In the week ending June 12, Jobless Claims rose 12k to 472,000, adding additional frustration after months of stubborn stagnation. The four-week average of  new claims was at 463,500, above the 450k mark which economists say would indicate  private jobs growth between 40K and 80K per month.

“The labor market has added private jobs consistently in 2010 from January through May. Until the May payroll data job growth had accelerated each month,” said economists at BTMU. “In April, net new private jobs jumped by +218K then dropped back sharply to just +41K in May. Furthermore, the downward trend in initial jobless claims has stalled, leading us to believe that April’s strong growth in private payrolls is the anomaly, rather than May’s anemic growth, which is now looking more and more believable.”

Treasury Auctions:

• 1:00 ― $30 billion 7-Year Notes