Welp, we are at the mouth of another Federal Reserve meeting and another highly anticipated but pretty much useless session by the central bank.
I know, I know, the Fed is a big deal. “Many economists expect the Fed to announce monthly bond purchases of $45 billion after its meeting on Tuesday and Wednesday,” as CNBC put it.
Some expect this kind of stimulus could be a big catalyst for the market, particularly for gold. But in my opinion, the Fed has become painfully predictable, and investors won’t have anything of interest to dig into.
Sure, the open-ended bond-buying thing is a hot topic of discussion. But remember that September euphoria after the announcement of QE3 that went up in smoke, with the market back to pre-FOMC levels in less than two weeks thanks to a five-day slide at the end of the month? Notice how the S&P is pretty much flat from levels before QE3 was announced Sept. 13? At the opening bell, the S&P 500 was 1,436.56; it’s 1,427.84 as of Tuesday’s closing bell.
So much for a Fed-fueled bounce, eh?
The reason central bankers can’t get the attention of investors is because they are painfully predictable in their strategy — by their own design.
ZIRP as Usual: The FOMC has been unwavering on its zero-interest-rate policy. In 2011, we were warned 2013 might be the end of the road — but back in January, the Fed extended that horizon “at least through late 2014.” In other words, don’t expect any movement in rates for another 18 months.
What Hyperinflation? Despite the hawks being worried about deficits and low rates and the like, hyperinflation is the nightmare that has never happened. The current annualized rate of inflation for 2012 is forecast to be about 2%. In the last five years, the peak was just 3.8% amid skyrocketing crude oil and $4 gas … but both consumer prices and producer prices haven’t hinted at rising costs.
Dollar Hanging Tough: The U.S. dollar hasn’t collapsed. The U.S. Dollar Index is up strongly since its 2011 lows. In the last year, the dollar is flat vs. the euro and Swiss franc and up slightly vs. the Japanese yen. In the last two years, the picture is about the same, save a small decline vs. the franc. So those expecting a dollar collapse better not hold their breath.
Breaking News: Fed Doesn’t Care About Savers! This spot from Bernanke’s QE3 announcement in September says it all: “… my colleagues and I are very much aware that holders of interest-bearing assets, such as certificates of deposit, are receiving very low returns. But low interest rates also support the value of many other assets that Americans own, such as homes and businesses large and small. Indeed, in general, healthy investment returns cannot be sustained in a weak economy, and of course it is difficult to save for retirement or other goals without the income from a job.” In short, the Fed has been — and continues to be — focused on struggling businesses and unemployed workers, not savers. So get used to it, even if you don’t like it.
Sure, if no bond-buying was announced and if we saw a rate hike, the market would move … but either of those options seem all but impossible in their likelihood.
What is likely is that rates will remain the same, the previously announced bond-buying program will continue as planned and we’ll get a lot of silly soundbites that don’t mean a whole heck of a lot for the market.
If you know what’s good for you, you’ll forget about this Fed meeting and worry about what’s really putting the market at risk: The continued silliness over the fiscal cliff and over eurozone debt troubles, and the continued slowdown in corporate profits that could make the next earnings season even uglier than the last.
- On the bullish side, market breadth is getting stronger. (Bespoke)
- On the bearish side, Greece continues to circle the drain. (Zero Hedge)
- On the kittenish side, here are some guilty felines climbing Christmas trees. (BuzzFeed)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.