All Eyes On Bernanke
Almost every trader and investor will be waiting patiently for the Federal Open Market Committee(FOMC) interest rate decision, that announcement is expected to be released this afternoon. The Federal Reserve Bank Chairman, Ben Bernanke, will hold his second press conference after the Fed funds rate decision is announced. Therefore, the major stock indexes could remain range bound until all of these events take place.
Many traders and investors are expecting the Federal Reserve to leave the Fed funds rate unchanged at zero to a quarter percent. This rate is the overnight lending rate to the large financial institutions such as J.P. Morgan Chase & Co.(NYSE:JPM), Wells Fargo & Co.(NYSE:WFC), Bank of America Corp.(NYSE:BAC), and Citigroup Inc.(NYSE:C). These banks can basically borrow unlimited capital at zero percent. This important lending rate has been at this level since December 2008. This is the reason why bank customers hardly earn any interest on their savings account. In essence, savers get punished for not taking risk these days. The average interest earning on a savings account in the bank is around 0.10 percent, therefore, a $100,000 savings account earns you $100.00 in a year. Many people are now wondering if they should just keep there money under the mattress.
Many traders and investors are wondering if Chairman Ben Bernanke will hint that he will start another quantitative easing program soon. Currently, the Federal Reserve is scheduled to end its $600 billion quantitative easing program on June 30, 2011. This program has helped to create cash reserves on the banks balance sheets. These banks can then take this money and invest in stocks, commodities, and other market instruments helping to inflate the stock markets higher. Last summer, when the stock market faced its most severe correction and a possible double dip recession, Ben Bernanke announced his current QE-2 program and the stock markets skyrocketed higher. We can only wonder if QE-3 will be announced soon if the major stock indexes continue to slump.