U.S. stocks are on hold until the Fed and Bernanke speak on interest rates at 2:15 ET

04/27/2011 12:12 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Today the Federal Reserve tries something new.

After the Fed’s Open Market Committee meets and issues its usual 150-word cryptic explanation of its view on the economy at 12:30—Roman augurs reading the entrails of the daily sacrifice had it easy—Federal Reserve chairman Ben Bernanke will give a press conference.

I expect him to dance around all the questions that the Fed doesn’t want to answer: When will the Fed start to raise interest rates? How is the Fed planning to reduce its balance sheet after it ends its QE2 program of buying Treasuries in June?

But I do expect that he will explain his reasons for thinking that inflation is less of a danger in the United States than the financial markets do. The explanation is likely to stress Bernanke’s view that rising commodity prices, besides being inflationary themselves in the short run, are deflationary in the medium term. Higher prices for oil, for example, Bernanke is likely to stress, slow economic growth, reducing the economy’s utilization of capacity, and pushing down prices in many sectors.

I’m pretty sure that the financial markets aren’t going to buy into this argument in any significant way. Eyes are too firmly focused on the dangers of runaway inflation in the world’s emerging economies, and on the very real possibility that emerging economies will export their inflation in the form of higher prices for commodities and manufactured goods.

The financial markets, however, are extremely likely to hear any version of this argument from Bernanke as a signal that the Federal Reserve is going to be very, very slow to raise interest rates. With just about every central bank in the world outside of disaster-ravaged Japan raising interest rates, anything that adds to the conviction that the Fed will be the last to move will increase downward pressure on the dollar.

Bernanke’s press conference is scheduled for 2:15 p.m. ET.

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