Chad Deal 9:17 p.m., May 25
Fed Will Try to Goose Stocks in Election Year
The Federal Reserve announced today (Jan. 25) that it will stay with the longtime tradition of passing out free whiskey to voters in an election year to jack up the stock market.
Of course, the Fed didn't say it that way. It said it will hold short term rates from 0% to 0.25% until early 2014. Earlier, it had said rates would remain near zero until 2013. Also, the Fed said that it is considering buying long term paper to lower long term rates. The Dow Jones Industrial Average had been down 93 points; Fed comments goosed it up to plus-66 at day's end.
Of course, all this is a contradiction. Most economists are saying the economy is improving a little bit. Normally, that would mean the Fed wouldn't have an even easier monetary policy, such as it announced today. But the Fed wants it both ways: claiming the economy is improving while pumping more liquidity in. Generally, the move appears to be an "all systems go" signal to the stock market.
I, for one, will increase my stock holdings. However, there are possible calamities hanging over the world economy, such as European defaults or de facto defaults, so nothing is certain.