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I doubt the Fed will deliver what the markets expect (whatever that is) tomorrow
06/18/2013 6:29 pm EST
The Fed’s Open Market Committee will issue a statement that talks about growth, unemployment, the continuation of currently extraordinarily low interest rates, and, in a kinda, sorta way about the timing of any tapering off of the Fed’s current $85 billion a month in purchases of Treasuries and mortgage-backed securities.
My best estimate is that the Fed won’t say anything new. In his post-meeting press conference Fed chairman Ben Bernanke will talk about positive signs on the economy but also note that the recovery remains fragile. He’ll say that, yes, the Fed is thinking about “The Taper,” but that the timing for that depends on the data.
In other words, same old, same old.
Will that move global markets?
This is where it all gets very tricky. Because the power of the Fed’s words to move global markets depends on what the markets expecting. And I think that’s very hard to read right now.
If the markets are expecting some kind of reassurance that the Fed won’t start The Taper in July or September (there is no August meeting), then the same old from the Fed won’t do the trick. And the markets are likely to sell off on the disappointment.
If, on the other hand, the markets are actually expecting an “announcement” (couched in Fed speak, of course) of the beginning date for the Taper, then the same old from the Fed will be a major plus. And the markets are likely to rally on the lack of news.
Guessing at the sentiment of fellow investors is always inexact and dangerous. My feeling is that global markets are looking for reassurance after the recent sell off. I don’t think they’re likely to find it in the Fed’s statement or Bernanke’s press conference. I don’t think the disappointment will be a major one so I’m not looking for a wave of selling on the actual words. But, yes, I expect the market to be down for the day.
But as I say, this is a guess. I’m not putting any money behind it. I’d rather wait a few days and see how markets, especially the very volatile emerging markets, react.
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