Today’s FOMC meeting
Stock Market News Today Focuses on FOMC Meeting Outcome
Stock market news today, Oct. 30: Stocks are fairly steady today as investors await the Federal Reserve's next decision on whether to taper its massive bond-buying program, with general expectations being that tapering will be delayed until 2014 amid the recent onslaught of more negative economic indicators.
For several months, investors have had difficulty deciphering how the Fed will pare back this stimulus program, and confusion persists today. Some say tapering may begin at the next Fed meeting in December, while others are predicting next January or March.To continue reading, please click here...
Keith Fitz-Gerald Nails It on Today's FOMC Meeting
Almost every major news outlet predicted a taper coming out of today's FOMC meeting, but Money Morning's Chief Investment Strategist Keith Fitz-Gerald went on the record months ago correctly predicting there would be no taper.
The major news outlets were wrong, and Fitz-Gerald nailed it...Read more...
Today's FOMC Meeting Cheat Sheet
Today's FOMC meeting will kick off a two-day discussion of economic policy - and will leave unprepared investors confused...
Both the FOMC policy statement and its economic and market projections will be released on Wednesday at 2 p.m. EDT and will be followed by U.S. Federal Reserve Chairman Ben Bernanke's press conference at 2:30 p.m.
[Editor's Note: Stay tuned to Money Morning for a Wednesday FOMC Meeting roundup.]
The question hot on everyone's tongue is what the FOMC will decide to do about the $85 billion in monthly bond buying - will the inevitable quantitative easing (QE) taper finally begin?
FOMC Meeting: Fed Provides No Direction to Markets on QE, Adding to Volatility
Market participants were hoping for clarity following the highly anticipated FOMC meeting Wednesday on the big question: to taper, or not to taper?
As many expected, there were no explicit statements about when the Fed would end its massive quantitative easing (QE) measures.
"A few weeks back, I noted that Chairman Bernanke wouldn't have the guts to take his foot off the gas pedal when it came to stimulus, so it's no surprise to me that he's going to keep plowing $85 billion a month into bond buying," explained Money Morning Chief Investment Strategist Keith Fitz-Gerald. "What's interesting to me is that the market fell anyway, when he announced the economic risks have subsided."
The U.S. central bank kept its benchmark interest rate at 0%-0.25%, and kept in place its $85 billion a month bond purchase program. The consensus remains that the Fed will start to "taper" QE before the end of the year - although the timeline wasn't made clear today.
"I think the markets didn't get the clarification they wanted," Fitz-Gerald continued. "Are things good enough that stimulus is no long warranted or bad enough that bond purchases are still required? For a guy who promised a new era in Fed transparency, this is yet more double talk."
As for when interest rates (near zero since December 2008) could be raised - likely a separate and farther-out move than tapering QE - Morgan Stanley Chief Economist and former FOMC secretary and economist Vincent Reinhart has said the clue is in when QE starts to end.
He says if QE and rate decisions are data dependent, as the Fed maintains, the two cannot be separated. So any future Fed tapering talks suggests Team Bernanke has grown more optimistic about the health of the economy and less inclined to believe further QE will prove advantageous.
Bernanke said today any change in policy will come after stability in the Fed's economic forecasts.
Today's FOMC Meeting Ends with Major Change
After today's Federal Open Market Committee (FOMC) meeting, the Fed announced it would expand the third round of its bond buying with fresh stimulus, replacing the soon to expire Operation Twist, set to end Dec. 31.
And in an additional unprecedented move from the central bank, interest rate decisions will now be tied to the unemployment rate and inflation.
About a half hour into the release, the Dow Jones Industrial Average staged a near 65-point rally - but then lost that gain and ended down nearly 3 points at 13,245.45.
Here's a breakdown of the FOMC meeting outcome.
Today's FOMC Meeting: QE4As expected, the FOMC meeting ended with a replacement for Operation Twist, the expiring program introduced in 2011 of swapping short-term Treasuries for longer dated ones. The goal of Operation Twist was to lower long-term interest rates to stimulate the U.S. economy.
The new asset purchase program is an extended arm of the Fed's familiar quantitative easing programs, and has thus been dubbed QE4.
Now with QE3 and QE4 together, the Fed will purchase a whopping $85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period.
The buying spree will remain intact until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% for two years out.
The Fed also left interest rates at rock-bottom historic lows near zero, as was also expected.
While these moves were widely expected, what wasn't expected was the Fed's forward-looking guidance.
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What the Fed Will Do at Today's FOMC Meeting
Optimism swept over investors following the September Federal Open Market Committee (FOMC) meeting, but don't expect the same when this month's two-day Fed meeting wraps up tomorrow (Wednesday).
In fact, don't expect much of anything. No surprises and nothing new are expected.
It's widely agreed that the historic low interest rates won't be raised anytime soon, and there will be no grand announcements of any further game-changing stimulus programs like the Sept. 13 QE3 statement.
No new policy measures are forecast either, as focus has shifted to the Nov. 6 presidential election. Minutes from the meeting will be released Nov. 15, after ballots are cast.
This month's meeting will be more ho-hum and about discussions not delivery.
"The Fed has entered a holding pattern while watching for signs of a substantial improvement in the labor market," Ellen Zentner, senior U.S. economist for Nomura Securities told MarketWatch.
One Reason the Fed Meeting Today Might Not End in QE3
Dismal economic reports for the United States have recently made the stock market rise - not the expected reaction.
That is due to traders anticipating that a third round of quantitative easing (QE3) or a similar measure will be coming to stimulate the American economy.
Yet, despite unemployment rising in the United States and growth falling, no major economic stimulus programs along the lines of QE3 have yet been announced by Federal Reserve Chairman Ben Bernanke at any Fed meeting.
The timing of QE2 explains why.
QE2 was a program where the Federal Reserve inflated its balance sheet to purchase about $700 billion in U.S. Treasury bonds to finance the federal budget deficit. This unprecedented act was required as few other investors, either foreign or domestic, were buying U.S. Treasury bonds at the prevailing interest rates.
Without this action, the low interest rate environment promised by Bernanke until at least 2014 and imperative for the recovery of the United States economy, particularly the real estate sector, would have been untenable.
The Federal Reserve as a result became the "buyer of last resort" for U.S. Treasury bonds.
QE2 was announced by Bernanke at the Jackson Hole economic policy summit in August 2010. However, the Fed's bond buying did not start until after the mid-term elections in November 2010. QE2 ended in June 2011.
That is why QE3 has neither been announced nor initiated.
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Today's FOMC Meeting: We Could Wait Four More Months for Action
The U.S. Federal Reserve continued its wait-and-see stance today (Wednesday) and remained in idle mode when it said and did little at the conclusion of its two-day Federal Open Market Committee (FOMC) meeting.
The central bank decided to leave rates unchanged, reiterated it would leave rates low through at least 2014 (not extending them to 2015 as expected) and did not announce a third round of quantitative easing.
The Fed chiefs did, however, voice that should conditions warrant, they are ready to step in and take aggressive steps to bolster the U.S. economy.
PIMCO's leader Bill Gross told CNBC that "a changing in policy landscape can be expected in a month or so."
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Today's FOMC Meeting Too Early for Action
There is little doubt that the struggling U.S. economy could use some goosing, and the U.S. Federal Reserve is in a position to deliver a good boost.
But, a move isn't likely at the conclusion of today's (Wednesday) Federal Open Market Committee (FOMC) meeting.
While a fresh spate of data suggests new steps from the central bank are warranted, many economists warn that the economy doesn't need immediate action - especially since the prior moves from the Fed haven't been very effective.
Growth has clearly slowed and unemployment remains elevated, but the sluggish pace of the U.S. economy may not be slow enough to compel the Fed to make an impactful move today, and any Fed decisions will be pushed to later in the year.
Today's FOMC Meeting: Not Ready for QE3The U.S. Commerce Department last week reported that the U.S. economy grew at a paltry 1.5% annual rate in the second quarter, down from 2% in the first. Plus, the Labor Department reported initial jobless claims ticked up in the latest week while the unemployment level remains at a sickly 8.2%.
Fed chief Ben Bernanke maintains that his team is prepared to take further action if unemployment stays high, but he remains vague on what action might be taken.
With the reeling recession in Europe and a slowdown in stalwart China, global growth has been severely dented and is weighing on the U.S. economy. Those factors increase the odds of a third round of quantitative easing (QE3), but the Fed may not pull the trigger Wednesday.
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