As I expected, the wildly optimistic expectations for further quantitative easing by the Federal Reserve at yesterday’s Open Market Committee meeting were not matched with substance. All we got was a continuation of existing modest programs and some minor tweaking of language.
Bernanke only managed to say that, “further stimulus will be provided as needed.” The Fed left unchanged its statement that economic conditions would likely warrant holding the benchmark Fed funds rate near zero “at least through late 2014.” It also said it would continue swapping $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action intended to lower long-term interest rates known as Operation Twist.
Apparently, the slowdown in GDP growth from 2% in Q1 to 1.5% in Q2 was not enough to spur the Fed to action. Nor was a slowdown in jobs growth from an average 226,000 jobs per month to 75,000. The earliest the Fed can now take further accommodative action is at their next meeting on September 12-13, just seven weeks before the presidential election.
The dollar rose smartly against the yen and the Euro. Equities closed at their lows for the day. They could have fallen dramatically further. But I think that traders are holding fire until their learn the results of the ECB meeting on Thursday. If we get more rhetoric instead of action, and the Friday nonfarm payroll continues weak, then we will have a hat trick of disappointments that could trigger a more gut wrench plunge in the indexes going into next week.
At the very least, we should challenge the bottom the of recent upward channel, taking us down 50 points from here. That should double the value of my existing position in the (SPY) puts.
Ben, Where Were You?