How Will Markets Digest The New Fed Message?
Jeff Miller | Jun 23, 2013 04:23AM ET
We have the first reaction to the FOMC announcement and the Bernanke press conference, but there is more to come. Sometimes there is a compelling story line, and the financial media will not let go. This is such a time. Every twist and turn of the market is attributed to Fed policy or interpretations by one and all.
Despite plenty of fresh news on tap, I expect another week of discussion and debate about the Fed. The stories will ask what the new Fed policy means for individual investors as well as for active traders.
There are many opinions about this week's Fed news, but I want to highlight three distinct ideas with a representative comment from each:
- What is the big deal? The Fed announcement merely amplified what everyone already knew. Former Dallas Fed President Eddy Elfenbein's weekly update :
"I think the markets are making a few mistakes here. First, too many people assume that without the Fed's help, the stock market is toast. The Fed has obviously helped the market so far, but that started when the economy was flat on its back. That simply isn't the case now.
The other mistake is thinking the Fed is running away. Not so! Short-term rates are still going to be near 0%. The bond buying is going to continue. It will just be in progressively smaller amounts. Remember that all of this is predicated on pretty optimistic economic projections. In the policy statement, the Fed said that downside risks to the economy have diminished. Let's hope they're right."
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