Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
After raising the market’s assumptions about a new round of quantitative easing for months, last week’s Bernanke testimony – marked by a tremendous intraday reversal of gold and silver mid week – was the first hint that a massive new program may not be coming…. yet. As the Federal Reserve now loves to telegraph everything to markets well in advance (after of course discussing things with a few ‘select firms’), the WSJ’s Jon Hilsenrath is one of the main leakage points. In this morning’s WSJ he conveys the message that the Fed is watching and waiting – i.e. no imminent action.
Of course if the folks at ECRI are correct about a recession and/or the market drops by X% the screams for QE will be deafening as apparently the Fed’s 3rd mandate is now never allowing the stock market to have a serious drop ever again. But as of next week, it appears no action coming.
- The Federal Reserve is pausing after a six-month campaign to boost growth, while policy makers assess a puzzling economic outlook. Fed officials meeting next week are unlikely to take any new actions to spur the recovery, and they are likely to emerge with a slightly more upbeat—but still very guarded—assessment of the economy’s performance. This comes after a series of moves in recent months, including recasting its securities portfolio in January as a way to spur growth. Then the central bank signaled in January that short-term interest rates are likely to stay near zero through most of 2014.
- A big question is whether the Fed will launch a new bond-buying program in an effort to push down already low long-term interest rates. When Fed officials gathered in January, they left the bond-buying issue unsettled. Fed Chairman Ben Bernanke, in his January news conference, sounded at times as though he were leaning toward more purchases but made clear it depended on how the economy performed. Today, the matter is more uncertain because the economy’s behavior has been confusing.
- Fed officials have been surprised unemployment has fallen to 8.3% from above 9% in just a few months despite very modest economic growth. Usually it takes much faster growth to move the jobless rate so much. (amazing what happens to that rate when millions drop out of the work force) That could mean the unemployment declines aren’t sustainable, or it could mean the economy has more underlying strength than recent data indicate. Fed officials aren’t inclined to move while they try to solve the puzzle.
- Most Fed officials aren’t very worried about inflation right now. Gasoline prices are on the rise again, which in the short run threatens the Fed projection that inflation will fall below its target of 2%. But Mr. Bernanke has in the past looked at blips in gasoline prices as temporary and seems inclined to do so again.
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