Tags: Fed | QE | policy | meeting

MarketWatch: Hint of Fed Policy Changes Would Spark Stock Tumble

Monday, 18 Mar 2013 12:11 PM

By John Morgan

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Any hint by the Federal Reserve after its meeting this week that it intends to ease away from quantitative easing (QE) sooner than expected would cause a stock market downdraft, according to MarketWatch.

The consensus view is that the two-day Fed meeting that ends Wednesday will yield no big surprises. The Federal Open Market Committee is widely expected to keep interest rates near zero, where they have been since 2008. It is also expected to continue buying $85 billion monthly in Treasury and mortgage debt to keep rates low as linchpins of the QE strategy.

But if a different signal comes out of the meeting, analysts MarketWatch talked to warned the consequences could be bad for stocks.

Editor's Note:
Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Matthew Tuttle, chief investment officer at Tuttle Wealth Management, said that at this stage in the equity rally “you’ve got people who have their finger on the ‘sell’ button just waiting.”

“The Fed understands this is a touchy subject … and at some point, they have to put their foot off the gas. The key will be how they do it, how they signal it,” Tuttle added.

Scott Wren, senior equity strategist at Wells Fargo Advisors, told MarketWatch it would be “perceived as an erratic move” if the Fed signals a change in direction.

Minutes from the Fed’s January meeting revealed many Fed officials are worried the bond purchases and low interest rates threaten eventually to cause higher inflation

The Wall Street Journal reported the Fed has been watching the strengthening housing recovery very closely. If forecasters are correct, housing data should give policymakers no cause for concern, The Journal said.

Currency traders, who have bid up the U.S. dollar by 4 percent since the last Fed statement in January, will also be watching the Fed meeting outcome closely.

"The focus continues to be on trying to predict when [the Fed] will start to remove some of the policy accommodation," Charles St-Arnaud, currency strategist at Nomura Securities in New York, told The Journal.

Andrew Dilz, foreign currency trader at Tempus Consulting in Washington, told Reuters, "It looks like we still have some scope to continue with QE."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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