Economix Blog: Live Updates on the Fed Announcement

Markets are in a state of almost eerie calm as investors await the Federal Reserve statement.

Through early afternoon, the major stock indexes were trading within 0.2 percent of Tuesday’s close. Traders have talked about saving up their firepower to respond to the Fed later in the day. A note from RBS strategists said that the markets they were watching “were very narrow as we wait for today’s Fed meeting.”

This is a sharp departure from the volatility in the markets over the last few weeks, as investors have furiously tried to divine the Fed’s future intentions and prepare their portfolios for any change.

Since Mr. Bernanke said on May 22 that the central bank could look at changing policy “in the next few meetings,” the Standard Poor’s 500-stock index has had five days with at least a 1 percent move.

On days when it appeared that the Fed might be preparing to pull back on the stimulus, stocks have generally sold off, while indications that the Fed might continue on with the stimulus have led markets up. The swings back and forth have left the benchmark index down slightly from where it was on May 22.

Some of the most serious action has been taking place in the bond markets, which are particularly sensitive to the possibility that the Fed could step back from its purchases of government and mortgage bonds. The yield on the 10-year Treasury note, which goes up when investors sell bonds, has risen from 1.6 percent in early May to 2.2 percent on Tuesday. This has pushed up mortgage rates, which has already driven down the number of homeowners refinancing their mortgages.

Much of the activity has been about preparing for what the Fed’s statement will say, and how Mr. Bernanke will explain it in his news conference. If Mr. Bernanke gives any indication that the Fed is looking at “tapering” its bond purchases, stocks and bonds are expected to sell off.

There are also some hopes that Mr. Bernanke will provide clarity about whether he plans to leave the Fed when his term runs out in January, which would probably influence the future direction of Fed policy.

— Nathaniel Popper

Article source: http://economix.blogs.nytimes.com/2013/06/19/live-updates-on-the-fed-announcement/?partner=rss&emc=rss