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Fed Set to Start Vital FOMC Meeting

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Pre-market activity is mixed this Tuesday morning, following new all-time closing highs notched on the Dow, Nasdaq and S&P 500, and within a few points of a new closing high on the Russell 2000. The Dow looks to have some fuel in the tank, +55 points, but the Nasdaq looks a little gassed, -20 points, with the S&P flattish at +5.

The Federal Open Market Committee (FOMC) convenes today to decide on monetary policy going forward, and is widely expected to announce at the end of its two-day meeting tomorrow a strategy for tapering the $120 billion per month in Treasury bond and mortgage-backed security purchases. It had been an open question in previous meetings whether the Fed would announce plans to taper; currently, it’s a virtually unanimous opinion that a plan is forthcoming.

The Fed must complete the tapering — which was installed as Covid-19 first broke through in the U.S.; Fed Chair Jay Powell & Co. wasted no time in stripping interest rates to zero and backstopping bonds with monthly buybacks — before interest rates can be raised. With inflation now running hotter than the optimum +2% for several months now, and employment metrics finally aligning with pre-Covid levels, this backstopping needs to be drawn to a close before inflation begins to eat away at economic growth.

For as difficult a time as the pandemic was on the economy — globally as well as the U.S. — the Fed’s uber-accommodation made certain to unstick the economic gears as we fought through to the other side of the pandemic. The question now is: when will the Fed start, and by how much? Some analysts see tapering beginning as early as the next couple weeks, others a month or so from now. But the overall understanding is that the taper program will complete sometime mid-next year, with decisions whether to raise interest rates will likely begin.

Speaking of employment metrics, tomorrow brings us the monthly private-sector payroll survey from Automatic Data Processing (ADP - Free Report) , and Friday holds the big nonfarm payrolls report from the U.S. government. Currently, expectations are for ADP’s headline to be around 395K new jobs created, down from the 568K in September. Friday’s report looks to bounce back to 450K from a woefully disappointing 194K the previous month.

And, speaking of Covid, coronavirus vaccine developer and Big Pharma staple Pfizer (PFE - Free Report) reported Q3 earnings this morning: earnings of $1.34 per share marked a 24% positive surprise over the Zacks consensus $1.08, and nearly double the 72 cents per share reported a year ago. Revenues of $24.09 billion in the quarter were a solid +7.5% higher than expectations, again nearly doubling the year-ago $12.13 billion. Shares are up +3.3% in the pre-market on the news.

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