Next week is all Fed, all the time

The central bank meets to discuss interest rates and the economy. And everyone hopes they do a better job of explaining their policy.

By Charley Blaine Jun 14, 2013 8:21PM
Ben BernankeUpdated: 5:58 p.m. Saturday

Can't we just get past the Federal Reserve?

Nope. The Fed was a big reason for this past week's market turmoil turmoil, and the central bank will probably be the biggest influence on markets next week.

The Fed's Federal Open Market Committee meets starting Tuesday. On Wednesday, the committee and, later, Fed Chairman Ben Bernanke will try to explain that it really doesn't plan to raise rates any time soon.

Maybe that will calm financial markets around the world, which have pulled back since Bernanke's May 22 testimony to Congress about the economy.

The Japanese have suffered maybe the most: The Nikkei 225 Index ($JP:N225) is off about 20% since May 22, while the effects have been far more modest in the United States.

Still, the Dow Jones industrials ($INDU) are off 3% from their May 22 intraday high. The Standard & Poor's 500 Index ($INX) is off 3.6%, with the Nasdaq Composite Index ($COMPX) down 3.1%. The Dow and S&P 500 have fallen for three of the last fours weeks; the Nasdaq has dropped twice in those four weeks.

That stocks are down at all is startling to many. The Dow had risen 130% since the market bottom in March 2009, and a lot of people had gotten used to the market rising.

So Bernanke and the Fed will try to explain the following next week. (And they don't, watch out.)
  • The Fed has been buying bonds at a big clip to try to keep rates low, so the economic recovery can expand. Because of that goal and and slow U.S. growth since the recession officially ended in 2009, the Fed is not going to raise interest rates any time soon. The guess is still 2015.
  • The Fed will continue to buy Treasury and mortgage securities at the rate of $85 billion a month for a while yet. But they will not stop until the national unemployment drops from 7.5% to 6.5% or lower.
  • They probably won't say a word about when they might trim their purchases. But they will start to trim at some point. (One reason may be that there aren't enough bonds to buy.) They will let the data tell them when. That takes us back to 6.5% unemployment and inflation about 2% a year.
The reason this is an issue at all -- causing interest rates to move higher and the market swoon -- is the confusion the Fed and Bernanke sowed on May 22.

Speaking to Congress, Bernanke said he didn't expect to push rates higher, but he sort of said at some time the Fed might slow down its bond purchases, using the word "taper."

As Bernanke was testifying, minutes from the Fed's April meeting suggested the bond buying might be tapered (There's that word again) relatively quickly.  The Dow went from a 154-point gain on the day to an 80-point loss.

Bond traders went off the deep end and started to sell, and the 10-year Treasury yield jumped to as high as 2.27% on Tuesday from as low as 1.63% on May 2. The yield drifted back to 2.126% on Friday.

In the grand scheme of things, a 2.27% yield is quite low. The 10-year yield was 3.84% at the end of 2009, for example.

But lots and lots of people had made a lot of money buying bonds, watching their value go up as rates fell. Until, of course, rates stopped falling and bond prices took a dive.

Consider the iShares Barclay's 20+ year Treasury Bond (TLT) exchange-traded fund. It was selling at $124.01 on April 30. It finished Friday at $113.82. That's an 8.2% decline. A lot of investors suddenly discovered that their ETF was subject to market risk.

In the long run, banks, insurance companies, pension funds and, most of all, savers want the 10-year yield to be closer to 4% -- because that means they can get more return on certificates of deposit and other instruments. In the long run, the economy should be able to handle rates at those levels. But to take rates up quickly would be very disruptive to a struggling economy and to markets.

That's why traders, investors and regular folks should want the Fed to be very clear about what will happen. And that's why Wednesday will be a very big day indeed.

There are a few other things to watch for next week.
  • More than ever, Syria is something to track. Partly, that's due to the turmoil in neighboring Turkey. But the United States is now getting more involved in Syria's civil war with arms aid to rebels. As a result, light sweet crude oil (-CL) in New York jumped to $97.85 a barrel last week, a gain of nearly 2% on the week and 6.4% in June. Brent crude settled Friday at $105.93 a barrel, up 1.3% for the week and 5.8% for the month.
  • Housing starts for May will come out on Tuesday. The National Association of Realtors will report on May existing-home sales on Friday. And manufacturing surveys from Federal Reserve banks in New York on Monday and Philadelphia on Friday will get some attention.
  • Lastly, FedEx (FDX), the big package shipper, will report quarterly results before Wednesday's market open. FedEx is watched closely as a leading economic indicator.
Markets for the week



June 14

June 7

% chg.

YTD chg.
Dow Industrials

15,070.18

15,248.12

-1.17%

15.00%
S&P 500

1,626.73

1,643.38

-1.01%

14.06%
Nasdaq 

3,423.56

3,469.22

-1.32%

13.38%
Russell 2000

981.38

913.67

-0.63%

15.54%
Crude oil 

$97.85

$95.72

1.90%

6.57%
(per barrel)











U.S. Dollar Index 

80.742

81.660

-1.12%

1.09%
10-yr. Treasury yield

2.126%

2.161%

-1.62%

21.07%
Gold

$1,387.60

$1,383.00

0.33%

-17.20%
(per troy ounce)












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94Comments
Jun 14, 2013 10:39PM
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One thing puzzles me in this article. Has anyone else noticed it? The recession supposedly ended in 2009 [four YEARS now] and yet later in this same article, the writer says that if interest rates rise too fast [and how fast is that?] that it would be disruptive to a STRUGGLING  economy, and to the markets. If the recession ended Four years ago interest rates already should be up to the 4% range. Somebody is LYING [scamming, conning, call it what you want] somewhere.

Jun 15, 2013 12:21AM
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My Unitedhealthcare insurance went up 38% last year (I'm retired) and my Walmart food bill has gone up over 20% in the last year(my Orowheat bread-12 grain has gone from $2.67 to $3.18 and my 10 pack of steaks has gone from $10.00 to $12.25. When I retired in 2006 gas was $1.83 per gallon and I am now paying $3.59. but the government says that there is no inflation. Now I'm retired and confused?Unemployment in Europe is near 25% but in America it is less than 8%(Oh wait, we only count those that actually draw unemployment. not those that have exhausted their benefits and Social Security Disability Benefits have tripled since 2008. What does this all mean? Sing it Willie Nelson! "Turn out the lights, the party's over. All good things must come to an end." YeeeeeeeeHAWWWWWWWWW!

Jun 14, 2013 8:44PM
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YO Ben when are you going to start paying savers...
Jun 14, 2013 8:41PM
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Great Header, Charley. The Scorecard doesn't look so good. Basically, Bernanke can't say anything that couldn't be instantly refuted with actual facts. He was wrong. Wall Street failed to be upstanding, so odds are, they don't survive the routing. There isn't a need for banks that aren't trustworthy and the business platforms that used the circumstance to amass cash, dashed the economy... so hand them cigarettes and blindfolds and get on with shooting them dead. Unwinding this is a lifetime job for REAL lenders and REAL accountants, not dumb alumni. Did YOU make money when YOU were supposed to use it to shape our recovery? You can't outrun what's coming at you and there's nowhere on Earth that will welcome a no-ethic crook. This is the 21st Century. It could take until the 22nd to fully correct this. Was a few years of obscene unearned wealth really worth it?
Jun 15, 2013 6:53AM
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"The recession supposedly ended in 2009 [four YEARS now] and yet later in this same article, the writer says that if interest rates rise too fast [and how fast is that?] that it would be disruptive to a STRUGGLING  economy, and to the markets."

 

The truth is- Bernanke never had an exit plan and Dimon was too influential in the beginning. I have urged readers to review: Fiat Money Inflation in France by Andrew Dickson White. Short and bitterly precise in his description, White's book ALSO has that day's version of QE in it and what took place after infusing it into the markets (then) and not the economy. The farmer who couldn't afford to grow food went to jail, the baker who couldn't afford to sell $1,000 loaves of bread closed shop, while the stock-jobber getting rich directly off the printed money lived too well. In the end, the people freed the farmer, coaxed the baker back and cut the heads of the wealthy off. GET THE MESSAGE FOLKS, it's history repeating and wealth has no place on Earth to hide.

Jun 15, 2013 5:27AM
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The talking heads and BB can speak out of both sides of their mouth and satisfy the sound-bit requirements for truth because there are 2 American economies to talk about.

 

There is the real economy- private sector under-employment, part-time employment and unemployment that is struggling.

 

There is also the parasite economy - supported by theft from the real economy. 

 

The parasite economy is doing well.  It is the financial sectors, particularly the TBTF bankers and brokers, government employees and govt contractors, insurance companies and big business (the "gotcha capitalism" and crony capitalism supported by Uncle Sam and the elephants and donkeys who run federal and state and local govts.)   

Jun 15, 2013 7:20AM
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Rates moving to 4% wouldn't have a negative effect for any economy that's on solid footing. So let the Ten Year Treasury move there, and let's get some real Price Discovery. The Talking Heads always whine about what if the FEDS stop Printing when they should be asking what happens if they Don't. You can't print to Infinity.
Jun 14, 2013 10:00PM
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Obamaville - capital of the Third World
Jun 15, 2013 4:07AM
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First of all, there are typos in this article. Does anyone edit these any more? Second of all, what happens when the Fed stops buying the bonds? Is the Market going to crash then? This is crazy. The Stock Market used to be an expression of the Free Enterprise System. Now, its just another government controlled entity. Is anything independent of gov't interference any more?
Jun 14, 2013 8:46PM
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By the way... we start to fix this by ripping deadbeat hired-in executives and all their alumni buddies OUT of corporate management roles and cancel all contracts. Getting every eligible-to-work person worldwide back into the workforce, earning, paying taxes, recovering their existences-- does. I don't see one single Board Member, Director, Hired-in Executive, CEO, COO, CFO, Law Firm- surviving this.
Jun 15, 2013 12:39PM
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Next week is "All Fed, All the Time"?  C'mon, Charley, the last 4 years have been "All Fed, All the Time".  Stop the insanity and let the free market reach its natural equilibrium.  Only then can we begin to rebuild a sustainable economic recovery based on fundamental free market principles of supply and demand.  Until then, we don't really know the true value of anything, especially our own currency. 
Jun 14, 2013 11:56PM
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The other reason this article doesn't mention is hedge funds and traders also wanted a spike in volatility so they could churn the market and take advantage of the many opportunities that would and did create. The analysts, CNBC talking heads and other smart money types love to see the lemmings run over the cliff when they misinform the public/
Jun 14, 2013 8:47PM
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Bernanke has an awful lot of reparations to make. This time, what he prints he finds a grubber to write a check to cover.
Jun 15, 2013 7:12AM
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The FED has a exit plan for each and every CEO that caused the Great Recession. The Fed has a exit plan for each and every CEO that's hoarding Record profits and Cash on Hand. The Fed has a exit plan for anyone that doesn't need one and zero exit plans for the vast majority of Americans who are desperate for one. As Uncle Ben creates disillusion throughout the Mainstream Media with lies about his concern of unemployment or inflation, his real focus is crystal clear. That would be making sure all the elite have a chance to sell everything at the Highs while telling everyone else to hold to infinity. When it all implodes, he will tell you what all the talking heads always tell you, "No One Could Have Predicted It." Not only could uncle BEN have predicted it, he's intentionally creating it. And they say a sucker is born every minute, who knew it would be this many drinking the FEDS tainted Kool-aid.
Jun 15, 2013 8:37AM
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The point the article makes is that every time Benny boy farts the talking heads will be debating it's odds of being a messy one and thus it's affect on the market.  
Jun 15, 2013 5:35AM
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so when has the fed ever told the truth or the congress or our great president they are a bunch  of liars and cheats that help out their pocket with money the thieves the thieves.
Jun 15, 2013 10:55AM
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Don't know that the Recession really did end in 2009....The Markets recovered near then, and into 2010...

But the ending of a Recession, is based on either 3-4 quarters of positive growth or something?

I've seen it on a Chart somewhere, but don't really except the Methodology.

And you would have a lot of trouble convincing the masses..

That the Debacle really ended then; And I would sooner think in late 2010-2011..

And we are still a long way from home....With many bridges to cross yet.

Jun 14, 2013 9:53PM
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that's right, that's right QE46 anyone?? anyway, excuse me I interject a question here in this insane world we're living in since this fascinates me :

 

will you filthy vial vermin libs care to explain the logic in this, thanx.

 

'President Barack odumbazz's tour of sub-Saharan Africa this month was supposed to make history as his first stay extended stay in the region, but a this week has shifted focus onto the trip's price tag, which could reach upwards of $100 million.' man how great it would be if that pig and that pig wife would stay in sub-Saharan AFrica where he belongs!

 

the economy is in the toilet and this pig Marxist slime is burnin' thru a 100 million tax payer dollars????!!!

 

oh and I just got a good laugh at the latest polls about that pig messiah the libs love to lick his **** so much, this is funny! obama's approval is 46% while Bush's is 49% hahah!! oh now excuse me while I roll off into the living room from laughing at that one!!! and before that is was NSA spy on America insanity whistle blower which is a liberal himself! of course, I mean look at Snowden, that bad facial hair that air of smug arrogance around him, even liberal scum like him can't stand what Osama is doing, using intelligence communities as weapons against US!! WE THE PEOPLE! you sick 'n twisted guilty whites Jews and CAtholics, how you likin' your black muslim pig of a president again?? you deserve what's coming just round the corner, GOOD!!

Jun 15, 2013 12:22PM
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Fatty....You had better not be standing on a bridge, when I come across with my old truck..

 

You will be getting wet, hope you can swim..

Jun 16, 2013 7:50PM
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Where will the imbecile "57 states" take his next 100 million dollar taxpayer "vacation"?   Good thing he's cutting back in these times of needing to REDUCE government spending...

 

What an ***hole... 

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