(This story has been posted on The Wall Street Journal Online's Real
Time Economics blog at blogs.wsj.com/economics)
Federal Reserve Chairman Ben Bernanke and the rate-setting Federal
Open Market Committee ended their two-day policy meeting Wednesday.
After the decision on rates and the economy and the central bank's
economic forecasts, the main event: a press conference by the
chairman.
We're live blogging the whole thing here:
1:17 p.m. Two More 'Yes' Votes for Bernanke by Sudeep Reddy
If you're a close reader of these Fed statements, and we know you are,
you would've noticed a couple new names at the bottom. The two newest
Fed governors, Jeremy Stein and Jerome Powell, were sworn in over the
past month. Both supported the latest Fed action, as governors almost
always do.
The Fed's board is now at full strength for the first time since 2006.
That means the FOMC had 19 policy makers around the table, between the
seven governors and 12 bank presidents. (Only five of the bank
presidents vote at any time.)
1:16 p.m. Stocks Turn Higher by Paul Vigna
Dow's turned higher, although it isn't totally clear if it's some kind
of renewed optimism that Bernanke will saying something constructive
in his press conference, or the latest rumor-mongering out of Europe.
Regardless, Dow's up 21 now. Hope springs eternal on Wall Street.
1:04 p.m. The Most Nifty Tool for Fed Statements Anywhere by Sudeep Reddy
The Fed Statement Tracker tool from the WSJ's Jeremy Singer-Vine and
Phil Izzo tells you all you need to know: Today's statement changed
"Labor market conditions have improved" from April to "growth in
employment has slowed."
The Fed also noted the slower household spending and lower inflation.
If that's not a description of an invitation to ease policy, nothing
is.
12:52 p.m. by Sudeep Reddy
It's worth noting that the latest version of Operation Twist did turn
out to be modestly more aggressive than the Fed had to be to prevent a
tightening in financial conditions. It conceivably could have
considered a shorter time frame, extending the program beyond its
expiration this month but not all the way through the end of the year
(though that might've caused some howls). It also could have
considered a smaller amount of purchases. The Fed said it expects to
buy and sell about $267 billion in Treasurys through the end of 2012
in the latest extension of the program. (The program also could've
been modified into buying mortgage securities, but no such change was
really expected.)
12:50 p.m. by Sudeep Reddy
First, Paul, you nailed it on the QE3 piece. Everybody's talking about
QE3 hopes but no sane person could have expected it right now, given
the signals we've gotten from the Fed.
Now, Operation Twist. The Fed doesn't call it that, and many of our
friends hate that term, but no matter. The issue to consider here is,
again, the counterfactual. The Fed has been a big force pushing long
rates down by engaging in the twist. If it stopped, you could have
seen some movement in the other direction. No movement doesn't
necessarily mean it was unsuccessful.
By the way, for those who think we're crazy talking about this
operation: Under the twist, the Fed sells shorter-term bonds and uses
the money to buy longer-term Treasury bonds. It's designed to
influence a longer-term interest rate (instead of short-term rates
that the Fed traditionally influences).
12:47 p.m. We're Cool, We're Cool by Paul Vigna
U.S. 10-year yield down to 1.63%. If the Fed doesn't hurry up and
squeeze, there won't be much left to twist.
Dow down 25. Right now, traders all over the nation are dusting
themselves off, and saying, all right, all right. We expected that.
We're cool. We're cool. 2:15, baby. 2:15.
12:45 p.m. Fed's Twist Extension Gets Thumbs Down by Steven Russolillo
Stock investors are giving the Fed statement a thumbs down.
Stocks immediately fell after the Fed said it will extend Operation
Twist through the rest of the year. The Fed also said it was "prepared
to take further action" if needed, although the central bank didn't
announce any more aggressive steps to bolster the economy.
The Dow recently fell 80 points, or 0.6%, to 12757, after hovering
around the flat line for much of the session. The S&P 500 declined
0.7% and the Nasdaq Comp dropped 0.5%.
Markets had largely been pricing in a Twist extension. The fact that
QE3, or other bold moves, weren't announced are being treated as a
disappointment.
Gold is creeping lower, down 1.5% and trading just below $1600 an
ounce. Crude oil is getting whacked pretty hard, down 3.1% to $81.62.
The ICI Dollar Index, which tracks the U.S. dollar against a basket of
currencies, rose 0.4% to 81.67.
12:43 p.m. Here's a Question by Paul Vigna
Here's a question for better minds than mine: What's the real point of
Operation Twist? Far as I can see, rates aren't going anywhere, not
when the Fed's already pinned the funds rate to the floor, and not
when the only safe haven left in the world of any appreciable size
(sorry, Switzerland) is in the U.S. debt market.
So what will extending this program achieve?
Dow's down 54. They'll wait for the presser before doing anything rash
12:37 p.m. Operation Guess-What-Ben'll-Say-Next by Paul Vigna
The market would've loved to hear something about QE3 immediately,
which is why you got the selloff. But nobody really expected to hear
about QE3 in the rate decision. They'll start looking for some hints
at the press conference.
Dow down 73. The next hour-plus will see a lot of bouncing around in
the stock market. This day's one big trading opportunity for the
hot-stock boys.
(MORE TO FOLLOW) Dow Jones Newswires
June 20, 2012 13:19 ET (17:19 GMT)
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