Does The Bernank Have Another Ace Up His Sleeve?
This afternoon, the Federal Reserve Bank Chairman Ben Bernanke will give a speech to the Economic Club of Minneapolis. Many traders and investors are wondering if Chairman Bernanke will hint at another round of stimulus via more U.S. Treasury purchases or perhaps his latest concoction called Operation Twist.
Traders must remember that the last round of quantitative easing ended in late June 2011. Last year before the Federal Reserve implemented its latest round of stimulus called QE-2 they said the reason was because the central bank had a mandate to increase jobs. Unfortunately, the latest job results have been very limited. In the month of August, the U.S. Labor Department posted that there was no new jobs created. Many investors are simply wondering if the last QE-2 program was simply a way to further capitalize the large banks that are too big to fail.
This time around the Bernank may need to wait a while before trying to inflate the stock market and the economy back up as he did in 2009. Since 2001, the central bank of the United States has kept the Fed funds rate extremely low. Many investors can now point to the low Fed funds rate as the cause for the housing and credit bubble of 2008. It is important to note that the Federal Reserve Bank now has rates at an all time low. The Fed funds rate has been at zero to a quarter percent (0.0 – 0.25%) since December 2008.
Traders should expect some volatility after the speech this afternoon by Chairman Bernanke. All of the major stock indexes are trading higher this morning, reversing a gap lower open. Traders are obviously optimistic that Chairman Bernanke will say something that will help lift stocks and not disrupt the markets.