While most investors having seemingly cast aside their fear and have dived into the deep end of the risk taking pool, the question stands before us if the Federal Reserve will disappoint them today?
In reality how much ammunition does the Fed have left? They will certainly affirm that they are going to keep interest rates low for a long duration. That has been President Bernanke’s calling card. The Fed has shown the desire to try to flood the system with relatively cheap money since 2008 in order to try to generate growth, but while there is no doubt they achieved some stability for the U.S. economy – a big growth spurt never really came. So what is it the Fed can really do on Thursday?
Now lets also glance into the political looking-glass. Everyone in their right mind is fully aware that a national election is in the cards this coming November and they are also aware that if the present administration loses that a different economic philosophy will be sought. Or at least that is what the rhetoric will claim from its new leadership – if they are voted into power.
Having said the above, we have been down this road before under the Bernanke leadership. And although it is fair to say that we should expect something to happen, it also might be wise to say that what will be offered will only be a moderate amount of stimulus. Why? The Fed will likely not want to put its neck out too far.
Not only that, the Fed may actually not have very much ‘neck’ left to serve up to those looking for relief. The only thing that could alter the economic landscape currently is a dynamic shift in philosophy, one that accepts that what has taken place in the States is a seismic change and that in order to achieve real growth and full employment another method is needed. While policy is a great tool it is results that are needed. The language from the FOMC Statement in less than 24 hours will be significant. But just how far will the Fed go in stating the obvious? That the American economy is showing signs of struggle and the confidence of the American household remains fragile at best. Don’t count on radical changes Thursday.