I have to start with a small disclaimer: I’m a stock trader, I’m not an economist, and I don’t follow the bond market. That being said, I’m still allowed to have an educated opinion on the Federal Reserve because I do follow their moves, and they are very influential on the overall stock market.
The next Federal Reserve meeting is on Sept 17-18, 2013. We are already starting to hear talks that the Fed might taper their bond-buying program. Ultimately, the decision is up to Fed Chairman Bernanke and I don’t think he will begin to taper for the following reasons:
1) Love him or hate him, in my opinion Bernanke has been VERY CLEAR about his plan. He will slow down QE (quantitative easing) when he sees economic conditions improving, SPECIFICALLY when the unemployment rate gets closer to 6.5%. While the latest jobless rate dropped to a four-year low, it still came in at 7.4%. I would think he needs to see a few consistent readings below 7% before he even considers tapering.
2) Bernanke’s second term as chairman ends on January 31, 2014. Why would someone go THIS FAR with his plan, only to let it fall apart right before he leaves? My feeling is he wants to leave on a high note and will pass along the responsibility to the next chairman.
Over the next few weeks, we will hear 50 different opinions on tapering. In addition, the media will talk about it non-stop because we are coming up on a seasonally slow time for the market and there’s not much else to talk about. As a trader, this is all noise. My investment decisions will mainly be based on the price action of stocks. For example, when the media scared everyone with all the Fiscal Cliff talk at the end of 2012, many stocks were acting well and I came into the year fairly invested. I suggest you do the same going into this event: Shut out the noise and focus on your stocks! This is the ultimate indicator that will either keep you in or get you out of the market. Good luck trading!
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