The Federal Open Market Committee is meeting today and tomorrow. For several years it has been obvious what the pronouncement at the end of the meeting would say. This time there is doubt. If the FOMC really wants to keep pretending that the economy is recovering, then it will continue a stated policy of reducing the inflation of the money supply (even though the reality is that there has not really been any reduction in actual fact) and getting closer to a rise in Fed-controlled interest rates. If this is the direction they go, that will tend to have a negative impact on the stock markets. On the other hand, if the FOMC admits that the jobs market and housing market are as bad as they really are, they can continue to state that higher interest rates are long in the future. That would tend to support current high stock prices. However, the FOMC is not likely to admit that it has been constantly lying to the public. So what will likely occur is that the announcement will self-contradictory. First will be a statement that the economy is in recovery. To back up that claim, dont be surprised if there is another decline in the stated inflation of the money supply (masked by calling it quantitative easing). Then there will be a statement admitting that the economy may not be in recovery. As a result, to be cautious, the FOMC will still put off far into the future any prospect of higher Fed-controlled interest rates. Of course, the FOMC wont admit that the US economy is in the tank. Instead, they are likely to use careful text saying that the recovery is not necessarily strong or is at risk of turning down.
Posted on: Tue, 16 Sep 2014 14:28:04 +0000