Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.
Rarely has there been a Fed meeting proking more market anxiety when the the chance of an interest rate increase is absolutley nil than the ongoing meeting that will end Wednesday June 24.
Rarely has the role of the Fed as market psychiatrist-in-chief been more front-and-center in the market’s consciousness — or unconsciousness, for that matter.
The market would, it thhinks, like the Fed to tell it when it will get concerned enough about potential inflation to take the wraps off interest rates; whether and when it will continue to buy Treasury securities and government agrency paper; whether and when the nation’s bansk will collecively no longer present a “systemic rsik’ without direct governmental aid; what the ‘top’ willl be in unemployment and the “bottom’ will be of housing; whether tit sees “green shoots” in the economy or ‘”ellow weeds”?
The honest answer to each of these questions is “We’ll see.” And Chairman Bernanke will probably find a way to say just that and not much more — the good doctor found out long ago that a placebo works just as well as Valium when it comes to market anxiety, and he must bear in mind that he is running for re-eelction in a primary where there is only one Voter-in-Chief.
Besides, if the Fed actually could answer those questions with precision and did so, the market would quickkly remeber the phrase “Be careful what you wish for”. The markets eyes want answers, but its stomach surely does not — precisley because the fed would lose all credibility if it actually tried to forecasrt beyond the macro numbers it ususally deals in.
We will have to be satisfied with a “steady as she goes” statement even if where she is going isn’t all that clear yet. What is more or less clear is that we have dodged Armageddon — whether that fact drives the US dollar’s relative value up or down in the wake of expanded fiscal deficits remains to be seen, and will be the first signal of how the market views what the Fed has to say — the markets for oil, commodities, and yes even fertilizer, not to mention banks (which have been dealing in fertilizer of sorts over the past couple years) will follow.
