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Fed Meeting: Bracing for Bernanke Buzzkill

*from www.money.cnn.com, Mar. 19, 2013 (To view original article click here.)

Take Away #1: Stocks are rallying, job growth is strengthening, and a housing recovery is well underway, but don’t expect the Fed to back away from its stimulus policies just yet.

Key Facts and Figures:

  • Instead of celebrating improvement in the economy, Bernanke and the Fed are more likely to express concern.
  • The Fed’s concern is expected to be about significant government spending cuts and how it may dampen economic growth later this year.
  • The U.S. economy added 236,000 jobs in February, the strongest in three months.
  • The unemployment rate fell to 7.7%.
  • However, the Fed seems to be nervous that as spending cuts take hold, the numbers are going to look soft.

Take Away #2: The central bank wants solid job growth to continue at a consistent pace for several months before backing off its stimulus policies.

Key Facts and Figures:

  • Half of the decline in the unemployment rate in February was due to workers dropping out of the job market.
  • While the addition of 236,000 jobs was a strong number, the central bank is calling for a higher pace of employment growth and less volatility in that pace.
  • “One good indicator of labor market improvement would be if we saw payroll employment increase by 200,000 each month for a number of months,” says Chicago Fed President Charles Evans.

Take Away #3: The Fed is currently engaged in a controversial policy of quantitative easing in order to lower long-term interest rates and stimulate more lending by banks and more spending by businesses and consumers.

Key Facts and Figures:

  • Quantitative easing involves the Fed buying $45 billion in Treasuries and $40 billion in mortgage-backed securities each month.
  • Unlike prior rounds of QE, this latest injection of monetary stimulus comes without an end date.
  • The Fed has issued a vague, qualitative guideline, simply saying it wants to see the market improve “substantially”.

Take Away #4: The Fed is also holding short-term interest rates near zero, and doesn’t plan to raise rates significantly until unemployment falls to around 6.5% or inflation exceeds 2.5% a year.

Key Facts and Figures:

  • Based on the latest figures on consumer prices, the annual inflation rate is 2%.
  • According to the Fed’s own forecasts, the unemployment rate is unlikely to fall to 6.5% until at least 2015.
  • The Fed will adjust this and other forecasts Wednesday, but economists aren’t expecting much to change.
  • We could expect a “brighter tone” from the Fed but it won’t lead to a much stronger projection for the economy.

Take Away #5: A gloomy economic outlook from the Fed on Wednesday could be viewed as good news by Wall Street.

Key Facts and Figures:

  • We could expect a “brighter tone” from the Fed but it won’t lead to a much stronger projection for the economy.
  • If investors interpret weak-to-moderate growth forecasts as yet another sign that the central bank will keep stimulating the economy, that could lift stocks.

*To view original article from www.money.cnn.com click here.

Filed in: Economy, Latest

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