Tuesday, August 10, 2010

Fed Day

Today brought the long awaited meeting of the Federal Reserve’s Open Market Committee. Investors were watching very intently, as for weeks there have been rumors that the Fed might institute a new round of quantitative easing. Many have postulated that any new stimulus from the Fed was already discounted in the market, and some were concerned that if they didn’t do anything, then the market would sell off in violent fashion. Others were concerned that the market might interpret more stimulus as a warning that growth must be in very poor shape, particularly in an election year.

2:15 came and went, and the Fed took what seems be very moderate action. They added language to their statement that said they will attempt to support the economic recovery by rolling over their current holdings of treasury, agency, and mortgage-backed securities as they mature. Below is a link to the FOMC statement that was released today. The market seemed to perk up as it surged off the day’s lows immediately after the statement was released. But by the end of the day the market gave back some of optimism, and it closed down, though still well off the intraday bottom. The message of the market was somewhat muted for now, but it will be interesting to see how the market trades in coming days as participants have a little more time to digest the latest move by the Federal Reserve.