Will the Fed surprise markets?
The central bank will announce its plans on bond buying on this afternoon. The question is how investors will react.
Sometime after 2:30 p.m. ET Wednesday, Federal Reserve Chairman Ben Bernanke is expected to step to a podium at the Fed's headquarters and try to explain what the Fed is doing.
What traders across all financial markets believe the Fed will say it's doing is something like this:
It's going to announce it is tapering its $85 billion-a-month bond-buying program, known as quantitative easing, with a view toward ending the program next year. The Fed is going to keep interest rates at ultra-low levels as long as it can.
Bernanke will pledge that the Fed stands ready to support the economy and markets, if Congress and the Obama administration can't agree on spending plans or whether to raise the U.S. debt limit.
Those are the basic decisions the Fed will make, with a policy statement coming at 2 p.m. ET, along with economic projections from Fed officials. Bernanke's news conference is at 2:30.
Stocks were down modestly Wednesday morning. The Dow Jones industrials ($INDU) were off 37 points to 15,492 at 1:37p.m. ET. The Standard & Poor's 500 Index ($INX) had dropped 2 points to 1,703. The Nasdaq Composite Index ($COMPX) was off 4 points to 3,741.
The announcement has been eagerly anticipated, almost like a drug. That's because many traders don't want to think about the expected fight over the budget, due at the end of the month, and an equally contentious fight over the nation's debt ceiling, expected in late October or November.
As a result, stocks finished modestly higher on Tuesday but are up considerably more than 4% in September. In fact, the Dow ended Tuesday looking at their best September since 2010 and second-best since the 21st century began.
But if the Fed comes up with a surprise decision -- such as a big taper -- markets could tumble in a hurry.
The vote of members of the Federal Open Market Committee, the Fed's policy-making committee, will probably include one dissent -- from Esther George, president of the Federal Reserve Bank of Kansas City. She has wanted the Fed to raise interest rates and stop its bond-buying, because she worries the Fed's policies could boost inflation pressures.
The dilemma the Fed faces is this: The QE program. now in progress. is in its third round. The goal was to help boost the economy, particularly the real estate sector, and help push cash into new investments.
When Bernanke and the Fed began to talk about tapering its quantitative easing in May, the assumption was that the central bank's monthly purchases would drop from $85 billion to maybe $65 billion. That sent bond yields soaring, even as Bernanke and others insisted they will keep interest rates low. Stocks took a dive.
But the Fed doesn't want to make a move without confirmation that the economy can handle it. That's an important concern. Jobs reports have been mediocre. Housing activity has tailed off. Back-to-school sales were flat.
Currently, the assumption is the taper, if it is announced, will be from $85 billion a month in bond purchases to maybe $75 billion. Under this theory, all of the trimming will come from the Fed's purchases of Treasury securities, now about $45 billion a month. So, purchases of mortgage securities would remain at $40 billion.
That may explain why interest rates have flattened out. The 10-year Treasury yield Wednesday was at 2.859%, up slightly from Tuesday's 2.853% and 2.98% on Sept. 5.
It also helps explain why stocks have had a terrific September. So does the easing of tensions over sarin gas use in Syria.
Gold (-GC), down $1 to $1,308.40 on Wednesday, is off about 6% this month after rising 14% between June 30 and Aug. 31. Gold briefly traded to as low as $1,291.50. Gold hadn't traded below $1,300 since mid-July.
Brent crude in London is down more than 4% in September. It was up $1.32 to $109.46 a barrel on Wednesday. Light sweet crude oil (-CL) in New York was up $1.59 to $107.01 but is down 0.6% on the month.
There are some forces that are beyond the Fed's ability to influence:
- The bitter gridlock in Washington that shows no signs of abating.
- Stagnant income growth for most Americans.
- The reluctance of business to make big new investments when they make as much profit just by laying people off.
- The on-going influence of oil prices and retail prices for gasoline and diesel fuels.
The last point is possibly the least appreciated piece of the stagnant economy picture and the horrific 2008 market crash as well.
The retail price of gasoline has been above $3 a gallon for more than 1,000 days, starting in December 2010, according to data from AAA's Daily Fuel Gauge Report.
The national average price of gasoline has jumped 170% since January 1, 2000. Not only has that jump been a constant drag on consumer spending, but when prices first topped $3 in late 2007 and reached as high as $4.114 a gallon in July 2008, the result was the near collapse of the automobile industry in the United States.
High fuel prices contributed to the real estate crash that began after 2005. High fuel prices made it difficult to sell property in the far suburbs of major markets. High prices also added to the stress homeowners faced making monthly mortgage payments.
Gasoline averaged $3.506 a gallon on Wednesday, according to AAA data. That was down from $3.512 a gallon Tuesday and $3.585 on Aug. 31.
Financial markets have become used to high fuel prices, and banks have been the driver of the stock market in 2013. The perception of stability may be why markets have rallied in September.
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Globally, the Scam Derivatives Markets are at the very least $500Trillion Dollars and some state it's at least twice that amount. These WMDs are clearly what froze up the Credit Markets and they are sole Reason the Global FEDS are printing to Infinity. However, there in no way in Hades they can EVER print enough fake money to account for phoney Digital Derivative Dollars.
What the Global FEDS can do, give the Illusion that everything is Fine and Dandy while giving the SuperRich ample time to Cash out Big Time before the inevitable Epic Global Collapse. And it will be Epic. Meanwhile, they sell you the BS of Buy and Hold to infinity. However, rest assured, the only answer the Global FEDS will offer in the end, One World Currency and One World Government. It's been their plan all along. And the World fell for it, Hook, Line, and Sinker.
For folks that think this Derivatives issue is Bogus, I suggest you look it up and read about it. Forbes has several Articles about it. Warren Buffet once called them WMDs. The Federal Reserve spent about $5Billion Dollars last year on Operations. That's a ton of cheese for such a Corrupt Organization to go thru. However, they do have a ton of Research available via the different Reserve Banks. The Cleveland FED site has a nice breakdown of the total Derivative Markets over time.
The article is titled, "Has the Over-the-Counter Derivatives Markets Revived Yet"
Authored by: Jian Cai
Housing starts won't matter....
Petroleum supplies won't matter.
Mortgage Apps. won't matter....
It's all about the FED today....
Classic Lady;Maybe today you can learn from my words of wisdom.As the Chinese say:"Experience
is not a kind teacher,but it is always a truthful one".
Fact is, Corporations pushed out Defined Pension plans to 401Ks to trap the Middle-Class, that much more into their twisted games. And for the most part, we fell once again for their Fool's Gold. Once the illusion fades and the Reality of What it actually means to be in a Global Fiat System, there is a Major Price to be paid. But what a hell of a Ride it's been.
Federal Reserve Chairman Ben Bernanke should just stop talking and do what he needs to do.
Every time he steps to the podium and makes a announcement he causes trouble. He should just
stop announcing what he is going to do. It's like he is bragging about his job. He is the cause of a
lot of the stock markets losses.
MY FAVORITE QUOTE FROM VOLTAIRE IS
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The Fed may start tapering in just a few months. Here are a few of the likely winners and losers.
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