Sunday, October 31, 2010

Will the Fed meet expectations?

On November 2-3, the highly anticipated meeting of the Federal Open Market Committee (FOMC), a 12-member group of US Federal Reserve members that establishes credit and interest rate policies, will take place. Since mid-August, members of the Fed have been suggesting that significant action will be announced at this session to help improve the US economy. While the size and timing of such intervention is unclear, expectations range between $500 billion and $1 trillion dollars.

MY TAKE: Investors are a bit edgy as we approach this event. Equity markets have had a strong rally in anticipation of another round of quantitative easing (expectations of economic and financial engineering can have this type of effect on markets). However, while bailouts and printing money can help to stabilize an economy, such actions may be less effective in stimulating improved productivity and growth. Longer-term improvements will likely be more dependent on international trade dynamics and renewed consumer demand. Note that meetings by the European Central Bank, the Bank of England, the Bank of Japan and the Reserve Bank of Australia also take place this week. Bottom line – it is likely that market volatility will persist.

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