Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19
Silver Is Cheap – And Getting Cheaper - 7th Oct 19
Stock Market Back to Neutral - 7th Oct 19
Free Market Capitalism: Laughably Predictable - 7th Oct 19
Four Fundamental Reasons to Buy Gold and Silver - 7th Oct 19
Gold and Silver Taking a Breather - 7th Oct 19
Check Engine Warning Light ECU Dealer Diagnostic Cost - Land Rover Discovery Sport - 6th Oct 19
Natural Gas Reloads For Another Price Rally - 6th Oct 19
Understanding and Purchasing different types of Plastic Building Materials Online - 6th Oct 19
Craig Hemke: Ignore the Elliott Wave “Buffoons” Calling for a Gold Crash - 6th Oct 19
Stock Market 6 Month Trend Forecast Conclusion - Video - 6th Oct 19
The True Causes Behind the Yield Curve Inversion and Gold - 5th Oct 19
Strategies on how to be a Successful CFD Trader - 5th Oct 19
Gold Stocks Correction Underway - 5th Oct 19
Climate Change When the Levee Breaks - 5th Oct 19
Federal Reserve Bank ‘Guarantees’ Dow Will Not Sink Below 26k - 5th Oct 19
The Russell and Transportation Tell A Completely Different Stock Market Story - 4th Oct 19
Confidence Drives the Economy and Trump’s Trade War Is Killing It - 4th Oct 19
ADL Predicts Crude Oil Prices Will Fall Below $40 - 4th Oct 19
Investing Money? Why You Need a Reputable Accountant - 4th Oct 19
Stumbling Manufacturing and Rising Gold – Now or Later? - 4th Oct 19
Silver Eyes Fourth Quarter Rebound - 4th Oct 19
Gold Price Forecast to Exceed $10,000/Ounce - 3rd Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

The Fed’s Big Money Printing Tease Continues!

Interest-Rates / Quantitative Easing Oct 08, 2010 - 02:09 PM GMT

By: Sy_Harding

Interest-Rates The Fed is not saying whether it will or won’t.
After its worst August in years the stock market has rallied back strongly in spite of growing indications that the economic recovery has stalled and is now slowing at a disturbing pace. The catalyst has been the market’s expectation that the Federal Reserve will initiate a second round of policy ‘easing’ that will re-stimulate the recovery.


The Fed is not saying whether it will or won’t, alternately holding out the carrot and then withdrawing it, keeping investors and traders uncertain but hopeful.

It was only a few months ago the Fed was talking of the need to withdraw the stimulus efforts of 2008 and 2009. But as economic reports this summer worsened dramatically, the Fed reversed itself, publicly discussing the possible need for another round of ‘quantitative easing’, dubbed QEII.

The market thinks it’s a sure thing, but the Fed continues to issue conflicting signals. Fed Chairman Bernanke will surmise in a speech that the economy is only pausing, and while the Fed will be watchful, action is not needed.

Several Fed governors will then make statements that include assessments that the economy is slowing too fast and action by the Fed is definitely needed.

Then Chairman Bernanke will hint that another round of easing may be needed after all, but several Fed governors will come out and say the Fed needs to wait, that another round of QE will do more harm than good.

Most recently, in a speech in Rhode Island Bernanke said the Fed’s previous program of buying $1.7 trillion of U.S. Treasury bonds and mortgage-backed securities (QEI) was an effective program and “additional purchases have the ability to ease financial conditions.” That was surmised to be the Fed preparing markets for Fed action at its next FOMC meeting in early November.

However, a few days later, several Fed governors were out with statements that indicate there is considerable debate going on within the Fed about whether another round of easing is necessary, and if so whether it would work this time or not.

For instance Friday morning, even after the dismal employment report, the president of the Fed’s St. Louis district said “This upcoming FOMC meeting is going to be a tough call, because the economy has slowed but it hasn’t slowed so much that it’s an obvious case that we need to do something.”

He added that maybe the thing to do would be to postpone the decision until the Fed’s December meeting, possibly preparing markets for that possibility.

So the Fed’s big tease continues.

Meanwhile, the side of the debate that questions whether another round of easing would be a positive, is getting some traction.

That argument is that QEI in 2008 and 2009 had a positive effect in pulling the economy out of the recession, but the main impact was made by the $700 billion of TARP bailout money, and the home-buyer rebate and ‘cash for clunkers’ programs provided by Congress. QEI contributed by helping keep mortgage and other interest rates low, but that another round, QEII, by itself would have little or no effect.

It would not create jobs, which is a major problem for the recovery. And QEI already has forced investors to take risks they wouldn’t ordinarily take in an effort to find profits, creating potential bubbles in junk bonds, gold and commodities, and has them even attempting currency trading. Meanwhile, the Fed already piled $1.7 trillion of assets in bonds and mortgage-backed securities onto its balance sheet in QEI, which it will eventually have to sell. Another round of asset purchases by the Fed will only create more risk taking and pump up asset bubbles, without helping the economy or producing jobs, while making the eventual removal of stimulus that much more difficult.

It’s a quite impressive argument, and is apparently not only going on among economists and analysts, but within the Fed.

Another possible reason to expect no action is that the Fed prides itself on being non-political. It therefore hardly ever makes a policy move in advance of an election. While that is more true of presidential elections, this year’s mid-term congressional elections have taken on unusual importance. That may be another reason for the Fed to postpone a decision on QEII until its December meeting, rather than risk being accused of playing politics.

Meanwhile, if the goal of QEII would be to try to inflate the economy out of its rut by pumping up the prices of gold, oil, commodities, and stocks, and holding up the price of bonds, so far the Fed’s ‘big tease’ is working just as well, without the Fed having spent a dime.

Which brings up another question. With Fed action already factored into prices is it going to be a case of ‘buy the rumor, sell the fact’ if action is taken?

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

christian
08 Oct 10, 21:28
doesn't matter wether lil guys sell the news

Doesn't matter if the little guys sell the news....

POMO's to the tune of 30 billion a month QE lite) will keep pumpin the market to about 12k....until the market grows tired of the fed teasin them about QE II.....then they will likely launch it....unless world powers somehow stifle ben b from blowing a food / oil bubble.

But the little guys could sell the news all they want but if QE gets launched ...8 billion a session pomo's EOD....will send market higher via primary dealers leverging up those funds and the market it will RISE UP to hell with the consequences


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules