The Federal Open Market Committee (FOMC) meeting ended today (Wednesday) with word that the Fed plans to the stay the course on QE for now, backtracking from earlier hints it might begin tapering this fall.
"For all those looking for clear guidance on when quantitative easing will end, well, you will have to wait a little longer," Joel Naroff, president and chief economist at Naroff Economic Advisors Inc., wrote in a research note. "Indeed, there may have been some walking backwards today."
Money Morning Capital Wave Strategist Shah Gilani said it's no surprise the Fed has backed away from talk of tapering.
Exclusive: Obama Tells Money Morning Why He Just Loves Larry Summers…
Larry Summers for Fed Chief... He's got my vote. Absolutely!
Why? You just have to get to know the guy and you'll see he's perfectly qualified to head the Federal Reserve.
Here's just part of his resume.
From 1982-1983, Larry Summers was on staff at Ronald Reagan's Council of Economic Advisers. That's where Lawrence of Enablers earned his "Deregulate Everything" T-shirt.
After his brief stint on the Gipper's Council, where he was taught how real pros corral free markets for personal profit, the Enabler headed back to Harvard to teach kids (and himself) how to squeeze personal wealth out of mere economic theory.
He got his next shot at stardom as Chief Economist of the World Bank in 1991. He was there until 1993.
While there he wasted no time shining a light on himself.
In a 1991 interview he famously said:
Read on here...
Esther George on Why It's Time to Begin Adjusting QE
Kansas City Fed President Esther George hasn't changed her tune about the Fed's massive quantitative easing (QE) program, as she explained in an exclusive interview with FOX Business Network today (Tuesday).
"I think it is time to begin to adjust those purchases," she told FBN's Peter Barnes. "The labor market has shown now, for the last six months, pretty steady gains of close to 200,000 per month. That is a good indicator that there has been sustained improvement here and that I think it would be appropriate, given the size of our balance sheet, given the level of accommodation, that we begin to make adjustments that reflect that improvement as we go forward."
Launched last year, and dubbed QE Forever, the program is aimed at holding down long-term interest rates. It has fueled the recent housing rebound and record breaking stock-market rallies.
Another Big Fed Week: The Bernanke Monetary Policy Testimony to Congress
There's a key market-moving event this week investors can't miss: the semi-annual Ben Bernanke monetary policy testimony before Congress on Wednesday (House) and Thursday (Senate).
Congressional legislation known as Humphrey-Hawkins (now expired) required the Federal Reserve's Open Market Committee to report to Congress on both the state of the U.S. economy and monetary policy twice a year (February and July). The Fed Chairman testifies before Congress in conjunction with the report.
Traditionally, it had been one of the most important public appearances by the Fed Chairman, back when speeches were rare. But now with news conferences after many Fed meetings, these appearances are less important.
However, this time may be different, as it will be Ben Bernanke's last time in front of Congress before his term ends in 2014. The testimony may once again be a market moving event due to the market's recent concern about the Fed's 'tapering' of quantitative easing (QE).
Which Ben Will Deliver the Monetary Policy Testimony?
The markets have been confused lately by seemingly contradictory statements coming from various Fed members and particularly from Bernanke himself.
In fact, Bernanke's actions lately remind me of Batman villain Two-Face, aka former District Attorney Harvey Dent.
For example, one time he said that winding down QE may happen as soon as the middle of next year. But then, like last week, he flips saying the Fed will not taper the $85 billion a month bond purchasing plan until the U.S. economy is stronger.
He said, "highly accommodative monetary policy for the foreseeable future is what's needed [for the economy]."
Bernanke added that there would not be an automatic rise in interest rates either when the U.S. unemployment hit the Fed's target of 6.5%.
These statements sent the stock market solidly higher with both the S&P 500 and the Dow Industrials nearing their record highs. The S&P 500 and Dow Jones Industrial Average hit new record highs Monday closing at 1,682.50 and 15,484.26.
Traders believe the 'Bernanke put' was back in play. That is, Bernanke will do everything he can to keep stock prices higher.
So which Ben Bernanke will testify before Congress this week? Accommodative Ben or Tightening Ben?
Your Best Strategy for Playing This QE Rally
Don't worry. The bubble "Quantitative Easing" has built is still intact. For now.
However, even though there's breathing room, don't think it's time to breathe easy. There will be Hell to pay, just not now.
And I have found three opportunities to take advantage of the next phase in this unsettling market.
But let's gather some perspective first.
The news that the Fed might taper QE bond purchases gave the bond (and stock) markets a fit of the vapors and caused gold to careen toward $1,200 an ounce.
Stay the Course with Gold as Mixed Signals Move Markets
Traders stampeded out of gold, emerging markets and bonds last month, setting record monthly outflows in June. Ever since the Federal Reserve hinted in May that signs of a stronger economy could allow for a slowdown of stimulus, markets have protested the news.
Gold has been hit hard by the tapering talk and resultant rising interest rates and liquidity drain, falling below $1,200 last week for the first time since August 2010. We're also seeing India, the world's biggest gold buyer, trying to stifle gold demand. As the government seeks to reduce its record current account deficit, it has hiked import tariffs on gold to 8 percent and introduced new constraints on rural lending against gold jewelry and coins.
Ross Norman, CEO of bullion broker Sharps Pixley, said, "It's almost as if the finance ministry is waging war on the gold sector, which would suggest that they feel they have lost control of the economy to some extent. In that environment, you would want to own gold more than ever."
Other factors fueling the liquidation were the raising of margin requirements on gold by the CME Group, the largest operator of futures exchanges in the U.S., and global liquidity concerns in the U.S. and China.
When the country with the largest GDP in the world and the country with the largest population on earth have liquidity concerns, traders run from stocks, bonds and gold, and head to cash. Even though gold traders have pulled out of their financial investments, there has been a surge in physical gold buying and central bankers have maintained their positions.
Top 5 Choices for the Next Fed Chief Leave Much to Be Desired
After President Barack Obama all but fired U.S. Federal Reserve Chairman Ben Bernanke in a recent television interview, everyone's been trying to figure out who the president will name as the next Fed chief next year.
Of course, Money Morning has long been critical of the Bernanke-led Fed, and in particular its easy money policies of recent years -- namely its zero interest rates and waves of quantitative easing (QE) that have added trillions to the Fed's balance sheet.
That debt, the asset bubbles it has created and the Fed's too-cozy relationship with the Big Banks, has prompted the experts at Money Morning to question whether the Federal Reserve should exist at all.
"I believe the Fed is outmoded and should be disbanded," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, who recently wrote about whether the Fed is necessary. "It's a financial body that has outlived its usefulness and is merely causing us to lurch from crisis to crisis. Barring any change in the notion of what it's there to do, get rid of it."
Still, for the time being, we're stuck with the Federal Reserve. And the next Fed chief - whoever President Obama appoints in January -- will be setting monetary policy for at least the next four years.
One thing's for sure: Anyone who dislikes how Bernanke has run the central bank probably won't be happy with the next Fed chairman either.
As confounding as it seems now, it was not the liberal Democrat President Obama, but Republican President George W. Bush who first appointed Bernanke to head the Federal Reserve in 2006.
That Obama re-appointed Bernanke in 2010 made sense, as they share a similar Keynesian economic philosophy. That is, they both think the best way to help a weak economy is through massive government spending no matter how much debt piles up.
So while Bernanke may be on his way out the door, you can bet that whoever President Obama chooses as the next Fed chief will be just as much of a Keynesian as Bernanke has been - and maybe more so.
Heaven help us.
The Fed Or the Fundamentals? What's Behind Stock Market Moves?
What's driving the stock market - the Fed or company fundamentals?
The answer, of course, depends whom you ask.
Has most or all of the growth in the market over the past few years been due to the Fed's massive QE easy money stimulus?
Or is it fundamentals like earnings per share and the price/earnings ratio?
We asked three experts to weigh in: Money Morning Chief Investment Strategist Keith Fitz-Gerald, Money Morning Capital Wave Strategist Shah Gilani and Brian Wesbury, the chief economist at First Trust Advisors.
Here's their take.
Different Fed Chairman, Same Bad Monetary Policy in 2014
One of these economic alchemists may likely assume the job of Ben Bernanke. If so, pray for us.
Last week, President Obama indicated that Federal Reserve Chairman Ben Bernanke will likely step down in January when his term ends. After taking office in 2006 under then-President George W. Bush, Bernanke has facilitated the greatest economic transfer of wealth from America's grandchildren to banks and foreign nations in the name of sustaining the Keynesian vision of the economic stimulus.
But with Bernanke's departure, it is unclear just who will take the reins of the Federal Reserve, and what policies they will seek to maintain or discard five years after the height of the financial crisis.
Here are the five top contenders that we expect to make Obama's shortlist for next Fed Chairman. And each one of them should give us a great deal of concern due to their commitment to the same tired economic theory and policies that they are convinced will eventually work if we just keep doubling down.