Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

FOMC Meeting: Fed Provides No Direction to Markets on QE Tapering

Interest-Rates / Quantitative Easing Jun 20, 2013 - 04:04 PM GMT

By: Money_Morning

Interest-Rates

Diane Alter writes: Market participants were hoping for clarity following the highly anticipated FOMC meeting Wednesday on the big question: to taper, or not to taper?

As many expected, there were no explicit statements about when the Fed would end its massive quantitative easing (QE) measures.


"A few weeks back, I noted that Chairman Bernanke wouldn't have the guts to take his foot off the gas pedal when it came to stimulus, so it's no surprise to me that he's going to keep plowing $85 billion a month into bond buying," explained Money Morning Chief Investment Strategist Keith Fitz-Gerald. "What's interesting to me is that the market fell anyway, when he announced the economic risks have subsided."

The U.S. central bank kept its benchmark interest rate at 0%-0.25%, and kept in place its $85 billion a month bond purchase program. The consensus remains that the Fed will start to "taper" QE before the end of the year - although the timeline wasn't made clear today.

"I think the markets didn't get the clarification they wanted," Fitz-Gerald continued. "Are things good enough that stimulus is no long warranted or bad enough that bond purchases are still required? For a guy who promised a new era in Fed transparency, this is yet more double talk."

As for when interest rates (near zero since December 2008) could be raised - likely a separate and farther-out move than tapering QE - Morgan Stanley Chief Economist and former FOMC secretary and economist Vincent Reinhart has said the clue is in when QE starts to end.

He says if QE and rate decisions are data dependent, as the Fed maintains, the two cannot be separated. So any future Fed tapering talks suggests Team Bernanke has grown more optimistic about the health of the economy and less inclined to believe further QE will prove advantageous.

Bernanke said today any change in policy will come after stability in the Fed's economic forecasts.

FOMC Meeting: Hints Are in the Outlook

Overall the Fed saw "further improvement" in the labor market and lower inflation expectations.

"The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall," read the post-FOMC meeting statement.

In addition, the Fed expects growth to pick up in 2014 after slowing a tad this year, with the unemployment rate falling to a low as 6.5% by next year instead of 2015 as previously forecast.

A 6.5% unemployment rate is key for the Fed, as it has said it would keep interest rates near zero as long as the jobless rate remains above that threshold.

Despite the brightened forecast, 14 Fed members don't expect the first rate hike until 2015.

While Fed officials trimmed inflation forecasts for 2013, as expected, it kept estimates for 2014 and 2015 steady at close to 2%. Inflation is running low partly to "transitory influences," and will be closely monitored.

So what does this mean for the end of QE and higher interest rates?

"Their upgraded assessments for unemployment to fall to 6.4% in 2014 and for GDP growth to accelerate to 3% to 3.5%, would signal it's time to taper, were offset by language that articulated they are 'determined to get inflation to their 2% target,'" explained Money Morning's Capital Wave Strategist Shah Gilani. "But in fact, they see inflation going the other way. Certainly, that would signal that they are still fearful of deflationary tendencies and that they will keep the juice in the punchbowl."

"It's more of the same Fed speak so as to not jar the markets," Gilani said. "But we only have to look to what's happened in Japan to see our own future. More QE will be met with skepticism and fears of diminishing returns, and less QE will cause rates to rise, and banks in the short run, and bondholders in the long run to lose out big time. Volatility is back and it's going to rise inexorably."

FOMC Meeting: The BIG News...

The biggest Fed news this week actually came out before the FOMC meeting - and according to Money Morning Global Investing Strategist Martin Hutchinson, points to QE starting to end by 2014.

"The big news is that Bernanke is probably going next January," said Hutchinson. "He thus has to start tightening before he goes, because the new chairman won't have credibility initially (bond market crashed in 1979 and forced out a new Fed chairman, Bill Miller.) His statement in the meeting that QE "tapering" will begin this fall suggests he knows this!"

What will be interesting is to watch how Bernanke decides to unwind the billions of dollars in monthly asset purchases.

"It's not illogical to assume that the Fed doesn't actually know how to disengage," said Fitz-Gerald. "Kinda like that old line in Indiana Jones where he says he'll think of something as he charges off to recover the Ark."

Under Bernanke, the Fed has nearly tripled its balance sheet to around $3.3 trillion with its bond buying. The benefits of the "stimulus" measures are questionable.

"To paraphrase Jim Rogers...the people who are getting the trillions he's printing are having a lot of fun...I'm not so sure about the rest of the world," said Fitz-Gerald. "The sound we all hear is not applause but the can being kicked down the road further...Klink, clank, klunk."

Fitz-Gerald joined CNBC World earlier this week to talk about the "big-buying opportunities" tied to this week's FOMC meeting. Get the scoop here.

Source :http://moneymorning.com/2013/06/19/fomc-meeting-fed-p....

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

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


Post Comment

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

6 Critical Money Making Rules