Will The Federal Reserve Hose Down any Tightening Talk?

Markets moved higher in the US overnight, presumably on expectations that the Federal Reserve will hose down any tightening talk when Bernanke holds his press conference tonight. We say presumably because the Wall Street Journal tells us so:

After weeks of uncertainty about the course of Fed policy, jitters appear to have faded over the Fed slowing its program of bonds purchases. Starting in mid-May, concerns about a tapering of the Fed’s easing efforts sent Treasury yields higher and stock prices down from records.

Given the rally Tuesday, "investors are obv

iously anticipating the status quo [from the Fed], with no talk of immediate tapering," said Peter Jankovskis, co-chief investment officer at OakBrook.

But wait, what’s this?

The venerable Journal tells us elsewhere that gold fell because of the Federal Reserves expected tightening:

Gold settled at its lowest price in a month as investors prepared for the gradual end of the Federal Reserve’s stimulus efforts, which have been a catalyst for the market since 2008.

Or perhaps gold fell because ‘official’ US consumer price inflation came in weaker than expected, with ‘core’ inflation of 1.7%, below the Federal Reserve’s pain threshold of 2%.

If that is the case though, why have bond yields shot up across the board in recent weeks? Yields usually rise in response to rising inflation expectations.

The answer is that nothing makes sense anymore in a market under the control of a central banking authority. So we’re not going to try and make sense of it.

Greg Canavan
for Markets and Money

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Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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“The answer is that nothing makes sense anymore in a market under the control of a central banking authority. So we’re not going to try and make sense of it.” YES. Hold that thought. Explains why all us neo-Neo’s are searching for something else. “Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad. It is… Read more »

The problem is, not enough of us took the red pill.

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