Can the Fed Soothe Markets?
06/18/2013 8:30 am EST
The ECB and the BOJ have not yet given the markets what they want, and MoneyShow's Jim Jubak wonders whether the Fed will do any better next week.
For the week ahead, the important event is the June 19 meeting of the Federal Reserve's Open Market Committee. The Fed is really the last of the three main central banks to report, to meet for this cycle.
The first two have been pretty disappointing and the market has reacted with disappointment. Really, the Fed meeting is the last chance for one of the banks to do something that's going to make the market feel good.
I think the likelihood is the Fed is not going to do that. The market is going to wind up feeling bad, and the central banks are going to deliver 0-for-3 batting performance.
The first one was the European Central Bank. The European Central Bank did nothing. It didn't raise rates, it doesn't lower rates, didn't add any new programs, nothing. The market said, wait a minute, we're in the middle of a recession. The bank said basically yes, we know, but we see growth coming down the road in 2014 and that's good enough for us.
The market said, we don't see the growth for one thing...and even if we did, it wouldn't be good enough for us. So the market went into kind of a funk.
The next bank up was the Bank of Japan. It sort of sounds like the Three Billy Goats Gruff with the troll under the bridge. OK, so the Bank of Japan had a meeting and basically did nothing. It's not that the Bank of Japan hadn't done anything before. They have about $760 billion worth of expansion of the money supply on the books.
But the market said we know about that, we've known about that for a couple of months since April, so give us something new. We've already figured that into prices. The Bank of Japan said no, we're not going to give you anything new, we'd like to see how this plays out for a while. And the market basically went into kind of a snitty fit.
The Fed is up. One last chance. And I think the Fed is also going to disappoint. The Fed is probably not going to say what the market wants. The market right now would like the Fed to say we're not going to reduce our $85 billion in purchases of Treasuries and mortgage-backed securities until December, and the Fed isn't going to say that.
What the Fed is likely to continue to say is, "When we see the data, we'll adjust our policy." What the Fed has said is that when they see evidence that the economy is going to be able to reduce unemployment to 6.5%, they'll consider cutting the amount of Treasuries and mortgage-backed securities they buy. Until then, this policy remains intact.
The market has sort of talked itself into fear that the Fed is going to cut sooner rather than later, that they're going to start to taper off maybe in June (there is a June meeting) or maybe July. (I think that anybody who is still counting on the June meeting is smoking US grant bills instead of tobacco.)
The thing is that the Fed would not like to nail it so down to anything, because the data is very fluid. The economy is growing, but not very robustly, so the Fed doesn't want to really give the market anything. It doesn't want to reassure the market, but it doesn't want to talk up the market and then have to talk it back down later.
I think on the 19th, the Fed basically says, "What we've told you is what we're going to tell you," and the market is disappointed once again.