All About the Fed Meeting
by Sheraz MianSeptember 10, 2012 | Comments : 0 Recommended this article: (0)
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Stocks reached new highs last week as soft U.S. economic data raised hopes that the Federal Reserve will unveil a new round of quantitative easing. This follows the announcement of a bond purchase program from the European Central Bank and growing expectations that the Chinese fiscal and monetary authorities will also come through in stimulating in that country’s economy.
It is these central bank expectations that have pushed stocks higher this summer, even as economic growth has continued to weaken all over the world.
The Fed has been repeatedly assuring the markets that they stood ready to ‘do more’ should the economy remain weak. This was the takeaway from the Fed’s last meeting and also from Bernanke’s speech at Jackson Hole. As such, investors saw Friday’s sub-par August jobs report as pushing the central bank to announce QE3 at the conclusion of this week’s two-day FOMC meeting on Thursday.
Stocks have been making gains in anticipation of such an outcome all summer. So it will be interesting to see what they will do after they get what they were looking for so long.
The market’s QE fixation notwithstanding, I agree with those who question the relevance of more monetary stimulus to the issues facing the U.S. economy. With interest rates where they are already, it is hard to imagine a jump-start for aggregate demand solely through a few basis points drop in interest rates. But we will see how things shape up in the coming days.
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