In a few hours, the Federal Reserve will weigh in on both the U.S. economy and recent financial market developments and, at this point, only one thing seems certain – they will acknowledge a weakening economy and a plunging stock market.
They will probably tip their hand at further easing in some form (lest today’s rebound rally quickly turn into a dead cat bounce), but fall well short of offering any explicit support, which, in the end might not be such a good idea because, as we saw almost exactly a year ago, financial markets require intervention like a drug addict needs drugs – just words just won’t do.
As detailed last month, the Fed’s options include fiddling with the “extended period” language to guarantee freakishly low interest rates for an even longer time, cutting the interest rate paid on banks’ excess reserves to spur them to lend money into a market where there is a dearth of credit-worthy borrowers who actually want to borrow money, buy longer dated bonds to fiddle with the yield curve, or provide guidance as to how many years (or decades) they intend to wait before reducing their multi-trillion dollar balance sheet.
Of course, what stock market investors really want to hear is that another round of money printing is in the works and that the number being bandied about is a 13-digit one, but, they’re not likely to hear that today.
As an aside, I don’t know about you, but, until this moment, I never thought of one trillion as being a 13-digit number, this apparently being another one of those 21st century oddities where dollar figures spiraling ever higher are no longer suited to 20th century expressions such as “an x-digit number”.
Anyway, they’re probably sitting around the big mahogany conference table right now asking at ten minute intervals, “The Dow’s still up 200 points. Right?” so they can fine tune the policy statement to be released at 2:15 PM, not wanting to promise too much if markets don’t really need it.
They’ll soon find out that markets need everything the central bank has got and then some.
Markets could rebound after Thursday’s global market sell-off, but investors should see any bounce as a selling opportunity, as the world economy rolls towards total collapse, Mark Faber, editor and publisher of the Boom, Doom and Gloom Report, told CNBC Friday.
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