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Federal Reserve minutes disappoint a market looking for signs that another round of central bank cash is on the way
04/03/2012 3:34 pm EST
When the minutes, released at 2 p.m. New York time, didn’t show any indication that the Fed was planning to expand its balance sheet again and do more bond buying, stocks staged a mild retreat, falling to 1404.70 on the Standard & Poor’s 500 Stock Index at 2:40 p.m. from 1414 at 2 p.m.
To those on Wall Street who were convinced that the Fed had talked about plans for more quantitative easing, the February minutes were especially disappointing since they were a step back from the comments at the January Fed meeting about the need for a new program of bond buying. In the minutes from the January meeting a couple of members said that if the economy continued at its current pace it “could warrant the initiation of additional securities purchases before long.” In the February minutes that weakened to several expressions of the need for another round of quantitative easing if the economy weakened.
Today’s retreat (even if modest) in stock prices on an absence of comments about the need for more monetary easing would seem to buttress the position of critics of global central bank policy who say that the financial markets have gotten addicted to ever increasing floods of money from the Federal Reserve, the European Central Bank, the Bank of Japan, and others into the financial markets. And who worry that the recent recovery in asset prices isn’t sustainable once banks stop adding to the global money supply.
I’m not sure, however, that investors should find any comfort in any vindication of that position. Wall Street seems to be in the odd position of rooting for the economy to stumble so that the Fed will provide another round of cheap money to, once again, prop up asset prices.
From that point of view the section of the March minutes which said “participants agreed that the information received since the Committee’s previous meeting, while mixed, had been positive, on balance, and suggested that the economy had been expanding moderately” is bad news.
Does that suggest that Wall Street doesn’t have much confidence that company earnings in the first quarter will be enough to keep this rally going? We’ll find out next week when earnings season begins on Tuesday, April 10, with Alcoa’s report after the close of New York trading.
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