Wednesday is yet another Fed meeting where we get to hear “policy” from them. So many times in the past, the upcoming meeting has been called “THE” most important meeting ever. This one is being called the same thing. I have mentioned more than a few times in the past six years “what can they really say?” I’ve done this because the Fed never had any choices.
Do they have any choices now and for this meeting? Let’s look at what they can do, what they cannot do and what they shouldn’t do. The first option is for the Fed to do nothing and not even change what their mantra has been for so long by remaining “patient”. If this is their choice and I suspect it should be, the question then begs whether the markets will remain patient with the Fed? An impatient market place would presumably cast their vote in the Treasury and dollar markets amongst others.
Another option and the one the press wants you to believe is the Fed will do nothing, but with a caveat being the Fed actually hints at the June meeting as their target date to begin tightening. I am not sure about this one because the markets will react by front running the Fed. Let me sidetrack for a moment and point out how front running was initialized during Alan Greenspan’s era. It used to be the Fed would meet and decide policy, and then implement it. Market participants needed to decipher by Fed actions whether they were tightening, loosening or what the policy decision was, and then place their bets. (Mr. Greenspan changed this deciding to “spoon feed” the markets and actually say what their policy was). It was in this manner the Fed truly kept people guessing and more “cautious”. Caution was thrown to the wind when the Fed began making policy statements after each meeting. I am convinced they did this because they knew by announcing an easing of credit, it would be “front run” by the markets and thus the heavy lifting done by the market. In other words, the Fed could jawbone and let the market do their work for them.