The big financial news yesterday was the release of the Federal Reserve (Fed) meeting minutes, which were widely interpreted as signaling that the U.S. economy will receive additional monetary stimulus very soon. The news made the front pages of the Wall Street Journal (WSJ) with “Fed Moves Closer to Action” and the Financial Times (FT) with “Fed shows a strong consensus for action,” as well as the front business page of the New York Times (NYT) with “Many at Fed Ready to Act if Necessary.” These articles all seem to agree that the Fed will provide additional easing unless the economy improves sharply and unemployment starts to drop much more quickly than it has been. This is also the consensus of the private economic forecasters I follow, as well as Commonwealth’s Investment Research team.
What is interesting about this story is the unanimity of reaction in the press and economic community—and the absence of reaction in the equity markets. I would have thought that the markets would have responded more positively to the prospect of additional stimulus. The fact that they did not means that either the market already expected more stimulus—which is probable—or the Fed is losing its ability to goose the markets. If it is number 2, this is not good.
I don’t expect a sharp recovery, so I think we can expect the Fed to start taking action shortly. Articles like “Stakes rise as US warned of double-dip” (FT, p. 2), “‘Fiscal Cliff’ Has Many Perils,” (WSJ, p. A4), “French Leaders Return—to Worsening Economic Outlook” (WSJ, p. A14), and “BHP Signals Darker Days for Mining” (WSJ, p. B3) all suggest that the global economy is not poised to grow much faster, if at all. Even the positive stories, such as “Signs of Revival, Slight but Sure, for Home Sales” (NYT, p. A1), are at best cautiously optimistic.
The other major story of the day is the failure of the SEC to agree on new regulations for money market funds, as reported in “Changes to Money Market Funds Stall” (NYT, p. B1) and “SEC Can’t Agree on a Fix for Money Market Funds” (WSJ, p. A4). A vote on the new regulations—which would have required the funds to either hold cash reserves or to let their share prices fluctuate—was deferred when SEC Chairwoman Mary Schapiro decided she wouldn’t get the votes she needed. Financial firms lobbied strongly against these measures; their defeat (for the moment) suggests that, despite recent wins for the watchdog agencies, the battle over financial regulation is not over.
One final note in out-of-the-world news: Curiosity has started making tracks! The Mars rover is in good condition and starting to explore. If all the countries of the world are going to export their way out of trouble, we need another planet to export to. Go Curiosity!
Have a great day!