{"id":42111,"date":"2013-09-18T05:36:45","date_gmt":"2013-09-18T09:36:45","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=42111"},"modified":"2013-09-18T07:36:12","modified_gmt":"2013-09-18T11:36:12","slug":"taper-this-three-real-reasons-we-should-care-about-todays-fed-meeting","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/09\/18\/taper-this-three-real-reasons-we-should-care-about-todays-fed-meeting\/","title":{"rendered":"Taper This! Three Real Reasons We Should Care About Today\u2019s Fed Meeting"},"content":{"rendered":"<p>By <a href=\"http:\/\/WallStreetDaily.com\/\"><u>WallStreetDaily.com<\/u><\/a> <\/p>\n<p>Here comes the Fed!<\/p>\n<p>We&#8217;re mere hours away from receiving a decision on the most overhyped debate in recent memory:<\/p>\n<p>&#8220;To taper or not to taper&#8230;&#8221;<\/p>\n<p>Who does Bernanke think he is anyway, William Shakespeare?<\/p>\n<p>Puh-lease!<\/p>\n<p>The next policy announcement from the U.S. Federal Reserve&#8217;s Open Market Committee is due at 2 PM EST, followed by a <a href=\"http:\/\/www.federalreserve.gov\/mediacenter\/media.htm\" target=\"_blank\">live media briefing<\/a> with Chairman Ben Bernanke at 2:30 PM.<\/p>\n<p>But come on, people!<\/p>\n<p>The Fed isn&#8217;t cutting off the sauce cold turkey. We&#8217;re talking about tapering, here &#8211; perhaps as little as $5 billion per month and no more than $20 billion per month.<\/p>\n<p>So the Fed will <em>still<\/em> be propping up the market to the tune of $65 billion to $80 billion per month.<\/p>\n<p>The end result? The taper obsession gripping the market is complete nonsense.<\/p>\n<p>Or as Bob Doll, Chief Equity Strategist at Nuveen Asset Management, says, \u201cEventually, we\u2019ll forget all about it.\u201d<a name=\"read\"><\/a><\/p>\n<p>Indeed! Heck, it&#8217;s not even the most important announcement to come out of the Fed today.<\/p>\n<p>So what is?<br \/>\n<b><br \/>\n~ Fed Focus #1: It\u2019s All About Economic Guidance<\/b><\/p>\n<p>When Fed officials provide their policy update this afternoon, we\u2019ll also get their first forecasts for economic growth for 2016.<\/p>\n<p>The party line for many economists (and the Fed) has long been that the U.S. economy will accelerate in the second half of this year.<\/p>\n<p>Yet that\u2019s becoming harder to accept at face value given the following:<\/p>\n<ul>\n<li>Hiring recently tapered off. The economy only added 169,000 jobs in August.<\/li>\n<\/ul>\n<ul>\n<li>Consumers cut back on spending, with retail sales increasing a measly 0.2% last month.<\/li>\n<\/ul>\n<ul>\n<li>And confidence appears to be waning. The preliminary reading of the University of Michigan\/Thomson Reuters Consumer Sentiment Index for September fell to its lowest level in five months, at 76.8.<\/li>\n<\/ul>\n<p>Stephen Stanley of Pierpont Securities insists that \u201cthe languid August results underscore the big picture point that I have been hammering away at for a while: The vaunted second-half acceleration in the economy ain&#8217;t happening.&#8221;<\/p>\n<p>Will the Fed read the data the same way? If so, it could have profound policy implications. Namely, it would warrant the Fed stimulating the economy <i>even longer<\/i> by keeping interest rates at historically low levels.<\/p>\n<p>Bottom line: Any perceived economic weakness by the Fed should show up in future guidance. The Fed currently expects GDP growth of 3% to 3.5% for 2014 &#8211; and 2.9% to 3.6% for 2015.<\/p>\n<p><b>~ Fed Focus #2: Deciphering the Real Unemployment Situation<\/b><\/p>\n<p>Since the Fed launched QE3, the unemployment rate has dropped from 8.1% to 7.3%. If it falls to 6.5%, by the Fed\u2019s own admission, it\u2019s going to look to (finally) <a target=\"_blank\" title=\"How does forward guidance about the Federal Reserve's target for the federal funds rate support the economic recovery?\" href=\"http:\/\/www.federalreserve.gov\/faqs\/money_19277.htm\">increase interest rates<\/a>.<\/p>\n<p>However, <a target=\"_blank\" title=\"Friday Charts: Rise of the Droids and the Downside to Globalization\" href=\"http:\/\/www.wallstreetdaily.com\/2013\/09\/06\/android-smartphones-bernanke-taper\/\">as I\u2019ve noted before<\/a>, the drop in unemployment is a total crock. It\u2019s been caused by more and more Americans <i>dropping<\/i> <i>out<\/i> of the workforce &#8211; not <i>joining<\/i> it.<\/p>\n<p>Bottom line: Thanks to the sad labor participation rate, look for the Fed to lower its 6.5% threshold. Otherwise, it runs the risk of investors thinking the labor market is strong &#8211; and that an interest rate hike is coming sooner rather than later. And that would be downright irresponsible, given the data.<\/p>\n<p><b>~ Fed Focus #3: Revisiting Inflation Limits<\/b><\/p>\n<p>The Fed has conceded that persistently low inflation could be problematic. And that\u2019s precisely what we\u2019ve got.<\/p>\n<p>Case in point: In April, inflation checked in at a shockingly low level of 0.9%, year-over-year. It\u2019s now only hovering around 1.2%. And that\u2019s well below the Fed\u2019s stated inflation target of 2%.<\/p>\n<p>Bottom line: Expectations for inflation are key for determining when to raise interest rates. So look for the Fed to dial in its guidance to also include a lower bound for inflation.<\/p>\n<p><b>JP Morgan<\/b> (<a target=\"_blank\" href=\"https:\/\/www.google.com\/finance?q=NYSE%3AJPM&amp;ei=JK84UuDuJLGu0AG_tgE\">JPM<\/a>) suggested a level of 1.5%, below which the Fed won\u2019t look to raise interest rates, either. We\u2019ll soon find out if the Fed agrees, or if it has another target in mind.<\/p>\n<p><b>The True Fed Dilemma<\/b><\/p>\n<p>A Fed taper is a foregone conclusion. It\u2019s coming within months. However, the more significant event &#8211; an interest rate hike &#8211; remains a moving target. Just ask traders.<\/p>\n<p>Based on the most recent futures prices, there\u2019s a 55% probability of the first rate hike occurring in December 2014, and a 68% probability for it occurring in January 2015. Compare that to a few days ago when the majority of traders expected the first increase to come in October 2014.<\/p>\n<p>Bottom line: The true Fed dilemma is <i>when<\/i> to raise interest rates. And that decision hinges on expectations for the economy, inflation and the ever-fragile employment market. So forget about the taper. Instead, pay attention to the Fed\u2019s announcements on these three critical issues this afternoon.<\/p>\n<p>Ahead of the tape,<\/p>\n<p>Louis Basenese<\/p>\n<p>The post <a href=\"http:\/\/www.wallstreetdaily.com\/2013\/09\/18\/fed-meeting-taper-decision\/\">Taper This! Three Real Reasons We Should Care About Today\u2019s Fed Meeting<\/a> appeared first on <a href=\"http:\/\/www.wallstreetdaily.com\">Wall Street Daily<\/a>.<\/p>\n<p>Article By <a href=\"http:\/\/WallStreetDaily.com\/\"><u>WallStreetDaily.com<\/u><\/a><\/p>\n<p>Original Article: <a href=\"http:\/\/www.wallstreetdaily.com\/2013\/09\/18\/fed-meeting-taper-decision\/\">Taper This! Three Real Reasons We Should Care About Today\u2019s Fed Meeting<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By WallStreetDaily.com Here comes the Fed! We&#8217;re mere hours away from receiving a decision on the most overhyped debate in recent memory: &#8220;To taper or not to taper&#8230;&#8221; Who does Bernanke think he is anyway, William Shakespeare? Puh-lease! The next policy announcement from the U.S. Federal Reserve&#8217;s Open Market Committee is due at 2 PM &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/forex-news\/2013\/09\/18\/taper-this-three-real-reasons-we-should-care-about-todays-fed-meeting\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Taper This! Three Real Reasons We Should Care About Today\u2019s Fed Meeting&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-42111","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/42111","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=42111"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/42111\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=42111"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=42111"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=42111"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}