The meeting of the Federal Reserve’s policy making board, the Federal Open Market Committee, its first since July, has been awaited with more anticipation than usual. At its conclusion, the committee will issue a statement at 2 p.m. that is expected to announce that the Fed will start ratcheting down the bond purchases through which it has exercised its monetary policy of quantitative easing â€" a transition that has come to be known as the “taper.†The Fed chairman, Ben S. Bernanke, will follow up with a news conference at 2:30. Annie Lowrey, Nathaniel Popper and other contributors will be live blogging the developments here.
Today’s announcement comes at a delicate time for the Federal Reserve: It is weighing taking the first steps toward unwinding its extraordinary support for a weak economy at the same time it is undergoing a leadership change for the first time in the better part of a decade.
At the end of January, Mr. Bernanke is expected to step down. Janet L. Yellen, the Fed’s vice chairwoman, is now the leading candidate to take over, after Lawrence H. Summers, an Obama confidante and former Treasury secretary, pulled out over the weekend amid opposition from Mr. Obama’s own party.
But the unusually open and unusually raucous debate over the next leader of the central bank, a debate spurred by Mr. Obama himself, has unsettled some market participants. Some argue that it has also left investors less clear on when and how the Fed might start to take its foot off the pedal, despite Mr. Bernanke’s efforts to explain the Fed’s thinking to them.
That is because, in no small part, personnel is policy at the central bank. A new chairman might change the Fed’s communication policy, or might be a more or less powerful influence on his or her colleagues. The new chief might have more dovish or hawkish tendencies - ones that might not be apparent to observers on the outside, either.
The public debate itself has concerned some investors, too. Mohamed El-Erian, the chief executive officer of Pimco, the world’s biggest bond investor, described the Fed leadership debate as “not only unwarranted, but dangerous†in an interview.
“Unlike with fiscal policy, where you can spend money directly, monetary policy operates in part by convincing the private sector to do things,†Mr. El-Erian continued. He argued that a debate that eroded the credibility of its candidates might actually hurt Fed policy making.
But other watchers described it as more of a sideshow. “If the economy slows again, whoever is chair will slow tapering and delay raising rates,†James W. Paulsen, the chief investment strategist at Wells Capital Management, said in an e-mail. “There could be some significant differences in the timing of policy moves,†he said, but he described other economic factors, like confidence, as much more important. â€" Annie Lowrey
This is the moment that investors and traders have been waiting for all summer.
Since May, when Mr. Bernanke raised the prospect of the Fed’s pulling back, or “tapering,†its bond purchasing program, market participants have been debating exactly when the draw-down would begin, and making bets based on their estimates.
Most analysts have come together around the view that the Fed will announce today that it will start slowing down its bond purchases this month, leading Barclays strategists to title their note this morning, “Happy taper day.â€
The consensus view among many market participants is that the $85 billion that the Fed has been spending on bonds each month will be drawn down to $75 billion or $70 billion.
Ahead of the announcement this afternoon, trading in most markets has been light, as traders await the official statement and press conference. But the markets’ path to this day was not a smooth one. In the weeks after Mr. Bernanke raised the prospect of tapering, the benchmark Standard & Poor’s 500-stock index dropped nearly 6 percent. It is now up 2 percent since that initial announcement.
The more extreme response has been seen in the bond markets, where investors have begun to prepare for rising interest rates, which makes bonds less valuable, by selling off bonds. The yield on the 10-year Treasury bond has risen from 1.6 percent in early May to 2.9 percent this week. Overseas, the Fed’s moves have caused even more volatility.
Investors will be closely watching the details coming out of today’s announcement from the Fed. If the Fed decides to continue its full bond purchases, that could help risky assets like stocks. If the Fed decides to taper more than predicted, it could hurt stocks. But even if things go as expected, markets have a history of responding in unpredictable ways. - Nathaniel Popper
No comments:
Post a Comment