How can the Fed reassure markets?
The Federal Reserve's rate-making body will certainly promise Tuesday to keep rates low. It may hint at another program to boost the economy, but don't look for a blockbuster move.
The FOMC, the central bank's rate-setting body, has to tell the badly freaked financial markets that it won't sit still while stocks and the economy fall apart. And it has to calm the bond vigilantes who are sure that anything the central bank does is inflationary.
And, so far as anyone knows, the Fed has to do all that in the form of a written statement due to be released at 2:15 p.m. ET.
That's no easy task.
The Fed could say it plans a new round of purchases of Treasury securities to boost the economy. That would get the immediate handle of QE3, short for a third round of quantitative easing. It finished its $600 billion QE2 program on June 30.
There are economic and political risks to another round of such a program. Still, traders are hoping, The Wall Street Journal noted Monday, especially given the Fed's willingness to help in tight spots over the last 30 years.
Article continues below.Here's a look at what the Fed may say and may offer to do on Tuesday:
The Fed could say it will do QE3. But the political risks are great, and there are inflation risks to boot. But the question is, as Bloomberg News said Monday, whether a bout of inflation is preferable to a depression.
It may sell off many of its shorter-term securities and buy longer-term notes, a move that would push longer-term rates lower. That's more likely.
It will most certainly communicate its worries. Here's how:
It will acknowledge that the economy has worsened. In its June statement, the Fed said the economic recovery was progressing "somewhat more slowly than the Committee had expected." With recent revisions showing the economy was barely growing at all in the first or second quarters, expect that phrase to be strengthened, Reuters says.
Some of the slowdown was due to the March 11 earthquake in Japan, but higher oil prices, horrible weather and lack of job growth have stalled the economy.
It will have to acknowledge that its economic forecasts are too weak.
It will pointedly say that interest rates aren't going anywhere, maybe for years. The current phrase the Fed has been using for some time is that weak economic conditions "are likely to warrant exceptionally low levels for the federal funds rate for an extended period." That last phrase may be strengthened.
So, did QE2 accomplish anything?
The upside is that the program did give the stock market a huge boost. Between Aug. 27, 2010, when Fed Chairman Ben Bernanke first broached the topic at a Jackson Hole, Wyo., speech, and the market peak on April 29, the Dow Jones industrials ($INDU) jumped 26.2%, with the Standard & Poor's 500 Index ($INX) up 28.1% and the Nasdaq Composite Index ($COMPX) up 33.4%.
The market rout has cut those gains to 6.5%, 5.2% and 9.5%, respectively.
It did help put a floor under manufacturing and allowed the recovery of the domestic auto industry to continue.
The downside, at least according to critics, is that the cheap money set off wild speculation in oil, gold, silver, cotton and commodities. The Fed argues that those commodities were rising anyway. The Fed was only partly responsible.
Crude oil, in fact, more than doubled from $33 a barrel when it bottomed in February 2009 to $72 on the day of the Bernanke speech. Crude peaked at $113.93 on April 29 and started to fall back as gasoline prices cut into consumer spending.
Crude settled at $81.31 on Monday, off 29% from the April peak.
How can The Fed reassure the markets?
The answer is; to shut up, stop creating $ out of thin air and close down their counterfeiting operation.
God help us, if all Uncle Bennie can do is offer us QE3 tomorrow. What a complete fool and Geithner isn't much better. Collectively they are going to bury this country with runaway infaltion the likes of which we have never before seen. They have flooded the markets with trillions of dollars and yet it still isn't working. Obviously all that is backing up those dollars is the good faith and trust of the United States. Now what a joke that is turning out to be.
It is obvious the Feds are trying to deflate the dollar next to nothing and that is why China gave Washington a stern warning to get off their addicition to debt and pronto. And telling them to stop spending so much money on the miitary and waging war and policing the rest of the world as well. This is why Uncle Bennie is devaluing and devastating the once almighty greenback so when we eventually have to pay them back all those dollars going to China won't be worth a hill of beans. Ironically the Chinese know exactly what they are doing.
Does anyone on this sight really believe we will ever win this endless war in Afghanistan? No country for hundreds of years has ever won a war with Afghanistan and yet we are spending $10 bilion a month all borrowed from the Chinese. Let's face it, our government is flat broke but no one really wants to talk about that. This war is and will always be an exercise in futility. Russia was there for years and had to hightail it out of there.
And at the same time all this is happening China is spending hundreds of billion of dollars on beefing up their military. Hmmm...duh you think they might consider force if we can't pay them back? We don't hear too much talk about China and what they might be planning militarily. Beware of the sleeping GIANT!
Yea, keep waiting on that Gold bubble. Not gonna happen as long as we have stupid low intrest rates and helicopter Ben B.
Ol' Ben doesn't think Gold is money, 4 thousand years of history says he's wrong. He wants you hooked on his worthless paper...
Get out of all wars and use our military to protect our borders. Ban all foreign aid for a couple of years. The people that need the aid never get the money anyhow. We need a group of 6 of the smartest people in the world-not politicians to figure our way out of this. I am so tired of my tax money being misused I could spit. We have to be able to take care of US first before we can attempt to help anyone else.
NO to QE3!!!! NO! Just say NO! It does no good. In fact it just makes things worse, it force commodities higher which has actually lowered prospects of job creation as business see consumers stop spending. We can see this now, profits for businesses are huge as earnings show, but they don't higher people as they can see consumer spending dip due to higher prices.
Hence, it does no one any good. It's short term profits that re just inflated: money that seems higher but doesn't carry the previous values. And businesses are aware of this, that it is doing nothing to assist demand. It is demand and ability for demand that needs to be addressed. Increase infrastructure, power energy program that gets us off oil or something that stims demand.
My two cents.
Dear ol Uncle Bennie has run out of tricks and sleight of hand maneuvers. Whatever he does or ultimately says is hogwash so don't believe a word of it. Remember for quite sometime now they vociferously proclaimed the recession was over as we all began to wonder what Kool aid they were drinking. What's worse they actually think we believe one word that comes out of their mouths. I can only wait to see what uncle Bennie has up his sleeve this time.
Standard & Poor's were generous in their downgrading to Double AA +. It should have been much lower as the entire Federal government is broke as we just found out. Government would have shut down but they keep printing bogus dollars and borrowing to the hilt from idiots overseas who actually think we are going to pay them back their principal. Come 2021 all the tax revenues collected will be just enough to pay the interest on the debt with nothing left over. Then what??? Not a penny for anything including SS, medicare and infrastructure. Fellow citizens it is high time we take our government back and throw the lot of them out!!!
Do we really want to hear the truth? That might well be a disaster.
We want to hear Bernanke say we are going to do this and it will be a solution. I FOR ONE WANT TO HEAR HIM SAY IT AND I WANT TO BELIEVE IT.
For the truth, we owe tonnage of money. We have 20% of the population unemployed and half of the working population not paying income tax. We have, as I've read 60% of the people in the United States receiving some form of government aid. We have a huge percentage of our population approaching retirement. If, I remember things I have read, in the early years, we had over 12 people working to support each person receiving benefits last time I saw anything on the subject it was 2.5 workers. With high unemployment ove the past few years I will guess the number is even lower. Meanwhile our government has added medicare and prescription coverage to the unfunded benefits.
Truth, I am close to retirement age. Forty Three is not my age but the number of years I have been working. For the debt ceiling bull session. THAT IS HOW WE GOT HERE.
We need to cut the big stuff. We need to cut military spending-America spends more on our military than the entire rest of the world does-shocking but true. We could miss an occasional war and say you guys let us know how it goes and not be sacrificing our people and our money. We could have a country in trouble and say sorry to hear about your troubles but we are a little short of cash right now-Hey your leaders just told us that we owe them a few trillion and we need to pay up. We need to cut social security-yes it will hurt me. We need to cut the cost of education-what do we gain by our colleges giving aid to foreign students-HIGHER TUITION.
Most important, before we spend a dime or sign an agreement we need to ask HOW IS THIS GOOD FOR AMERICA.
economy but not much immediately for stocks...
Asia opens tonight with a huge dump,
greater than yesterday. By the time we open
in the US, the fear would be overbearing
whatever the Feds have to say. We have
outsourced too much and the outside has
reinvested right back into our dwindling
economy. It will be a slow comeback
after it bottoms out...
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[BRIEFING.COM] The stock market welcomed the new trading week with a mixed session that saw relative strength among large-cap stocks, while high-beta names underperformed. The Dow Jones Industrial Average (+0.3%) and S&P 500 (-0.1%) finished near their flat lines, while the Nasdaq Composite and Russell 2000 both lost 1.1%.
Equities began the day on a cautious note amid continued concerns regarding the strength of the global economy. Over the weekend, China reported its first decline ... More
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