What’s in Today’s Report: Bottom line – Are stocks pricing in an economic contraction? Weekly economic cheat sheet – Is stagflation imminent?
Whether the paper from the San Francisco Fed has any effect on Fed policy remains to be seen. But I think the conclusion that “forward guidance” is a more-effective policy tool than QE is incorrect, and I’m starting to get the impression that the academics at the Fed, and other central banks, are overvaluing “forward guidance.”
This week is a reverse of last week: Not a lot of international data, but an increase in domestic reports, although most of the releases are “second-tier” and are unlikely to have an effect on Fed policy going forward.
The economic data and central bank announcements last week were expected to help provide greater clarity on the three major questions in the market right now: When will the Fed taper? Is the European economy stabilizing? Is the slowing of China’s growth getting worse?
The FOMC meeting and statement generally met expectations, although on balance the statement was taken as slightly dovish (which shouldn’t surprise anyone).
This is an extremely busy week of potential macro-economic catalysts and for more color into what the Fed might do next.
The Dollar Index and Treasuries both rallied for the first time this week on Wednesday, but the main catalyst wasn’t the better economic data (although that obviously helped). Instead, the reports in the Washington Post and Huffington Post that Larry Summers appears to be the favorite to become the next Fed chairman weighed on Treasuries.