The Federal Reserve’s Federal Open Market Committee (FOMC) meet this week (October 28 and 29, with the announcements coming on the 29th), and it is widely expected that the asset purchase program will be halted entirely (most market participants believe it will, though I have seem maybe two investment banks saying it will be wound back to $5bn rather than stopped completely (UBS and BNP, from memory, but I could be wrong on those names).
In an opinion piece in the Wall Street Journal, as asset manager argues that the end of QE, though, “will be nothing more than a tactical retreat by the U.S. central bank, and that next year’s rate increase won’t materialize.”
Citing:
- U.S. economy remains “stubbornly weak”. Minutes from September’s FOMC meeting showed that several members actually viewed the risks to real GDP growth as weighted to the downside
- Also concerns that weak foreign growth could slow down the U.S. economy (Eurozone, Chinese economy keeps decelerating, Brazil back into recession, Russia weak too. Japan still suffering from the impact of the April sales-tax hike & lack of structural reform)
- The recent appreciation of the U.S. dollar … will hurt U.S. exports & is a drag on inflation (still well below the Fed’s 2% target) … further, he argues the Federal Reserve “could have no choice but to resume its easing efforts to keep the dollar competitive in what already looks like a tacit currency war”
Also, cites risks:
- A spreading of the Ebola epidemic
- A geopolitical development (such as another Russian incursion)
- A financial event (such as a large bank or a country defaulting)
- Or “simply a spontaneous selloff caused by high valuations and an accumulation of bad news, as we have seen in recent weeks on Wall Street and abroad”
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What do ForexLive participants say on the FOMC expected actions this week, and beyond?
