The views expressed in this column are those of the author and not SVB Financial Group.
Vote, baby vote!
Vote, baby vote!
Are you registered baby?
Are you ready for the voting tomorrow?
No, this is not a typo — I'm referring to the Federal Reserve's FOMC meeting today and tomorrow concluding with the typical vote on policy actions.
It seems the market is all geared up for action with short-term rates rallying some 20 basis points since talk of such activity began in earnest. Not only that, but 10-year Treasuries have fallen about the same. Even the rate at which Fannie Mae and Freddie Mac will make loans has hit an all-time low near an astounding 3.5 percent. ("If you qualify," of course!)
All of this is in anticipation of the Fed's move toward a second round of "quantitative easing" or "QE2" or, perhaps more appropriately, "further expansion of the Fed's activity in our economy through growth in their balance sheet."
The only question is how the market will react once we have QE2 in hand.
Likely, it will be a classic case of "buy the rumor, sell the fact" with some reversal and disappointment in the marketplace. I say this not to be flippant and simply rely on an old cliché, but because I really don't think the Fed wants much further expansion of their balance sheet.
Instead — and in true Fed historical fashion — the Fed wants to bully the markets around with blustering speeches and talk of action in the hopes the markets will do their dirty work for them.
Remember, not too long ago debate in financial circles focused on exactly how they could exit from all the stimulus and support programs that have been created since Lehman bit the dust over two years ago. But now, that talk has faded as it has become clear the global economy continues to drag along the bottom of the riverbed.
Knowing full well how quickly sentiment, and indeed reality, can change, Ben Bernanke and company want to keep as close to the middle of the road as possible even if they need to give the impression of aggressive action on either side at times.
This is a result of how market prices are set (last trade only, please!) as well as how important those market prices are.
So, tomorrow, when the ballots are compiled and votes have been tallied, don't be surprised when only a whimper of action is the result.
With apologies to Yogi Berra, the Fed's influence is 90 percent discussion; the other half is action.
The initial estimate for third quarter GDP is an increase of 2 percent from the previous quarter. Though the data may indicate that possibility of a double-dip recession is slim, the economy continues to only show a modest improvement overall.
Personal consumption rose 2.6 percent in the third quarter — the largest increase since fourth quarter of 2006. Consumer activity and demand remains steady, as retailers have kept prices competitive to maintain sales.
The core PCE measure rose 0.8 percent in the third quarter from the second quarter. This indicates that inflation continues to be below the Fed's long-term target, which will provide them the flexibility of additional actions going forward.
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