A Warm Up For Tomorrow’s Fed News

June 20, 2012

In honor of the FOMC news due to be released Wednesday morning I thought I’d compile some of Bernanke’s past work to remind us just how much fun he can be and how much the markets respond to his… well… words.

As always I’m not trying to be political, I am simply pointing out what has been going on and what kind of excitement we’re likely to see in the coming hours/day.  Lets start out with a quote by Brother Ben waaaaaaay back in October of 2007,

“It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”

Ummm… what?  No problem, all of us should be somewhat accustomed to the political sector saying one thing but doing the other.  Now the reason I bring this up is because tomorrow Ben and his goons will attempt to send out a message to the markets, the two big questions are as follows:

1. will the market respond for more than a few hours?

2.What more can he/they say?

I did a little poking around as to what the “big dogs” think might be in the works for tomorrow’s show and here’s what I found.

  • Goldman Sachs expects more easing tomorrow (IE the Fed will continue to buy up assets/debt at a large rate)
  • SocGen expects a version of QE3 in the form of 600 billion in mortgage backed securities (MBS) and treasury purchases.
  • JP Morgan sees a 75% chance of extension of zero interest rates and more TwistBofA expects zero interest rates ‘until mid-2015 at the earliest’, but no new easing program tomorrow
  • BofA expects zero interest rates ‘until mid-2015 at the earliest’, but no new easing program tomorrow
  • Morgan Stanley sees an 80% chance of ‘$475 bn in outright asset purchases’
  • Citi expects a $200B extension of operation twist
  • UBS sees a less than 30% chance of QE3 through purchases of MBS and treasuries
  • Deutsche Bank expects no new easing and an expiration of operation twist tomorrow
Remember a big topic for tomorrow is will the Fed come in stronger than they have been in the past months since the start of operation twist (the effort to sell short term treasuries and buy long term treasuries in their place)?  Remember that twist is set to expire on June 20th and it is gradually becoming a more adopted idea that they will extend twist and and even come with more more “fire power” than before.
These are all questions we must watch for tomorrow.  Remember, the markets appears to be pricing in further Fed intervention.  We’ve seen USD weaknesss extensively over the last few weeks and equities have seemingly found new life.  Gold is the only undecided factor here, especially the last few days as it has consolidated in a very tight channel.
As always, we will be live in the chat for this even while the news hits.  Expect high volatility in the markets tomorrow, it’s a rare day when the Fed speaks that all hell doesn’t break loose.


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