FOMC Notes – October 24, 2012


Written by: Jon McGraw

The FOMC completed their meeting today, with largely the same outcome as we’ve come to expect from the past several meetings. Wish we could say something new came out of it, but this was largely not the case: continued low rates through mid-2015 and a focus on ‘quantitative easing’ and ‘twist’ activities (read selective bond buying at strategic points on the yield curve). Even language changes in the official statement were virtually non-existent this time.

This quarter, the biggest concerns on investors’ minds seem to be conditions of overall global slowing, especially noteworthy in previously high-growth areas like China and other emerging markets. Warren Buffett even said so, which is usually good for a soundbite. At the same time, conditions are slowly improving for U.S. companies relative to other areas—earnings season has been a mixed one, however, as this improvement has been inconsistent from a sector-to-sector and company-to-company standpoint. Most recently, more cyclically sensitive names have struggled.

Back to the Fed… they remain in long-term easing mode, under the theory that one less headwind (by keeping rates low) places economic prospects at a better probability for success than would otherwise be the case. We may see more action at the Dec 11-12 meeting, which could include additional easing if necessary and/or discussion of potential target exit points for the current easing program (it has to end sometime). That might take the form of a target lower unemployment rate or level of GDP, but there will be much more speculation on that over coming months.

The election and fiscal cliff still remain as the top two concerns on many investors’ minds. As is often the case, it’s not necessarily the fear of any one potential outcome, but the uncertainty surrounding the choice (election) and timing (fiscal cliff) can can cause problems. Markets hate uncertainty as much as anything, so at least knowing the outcome (which is often not as bad or as extreme as markets initially price in) could provide additional market stability.