Markets Are Buying the Fed's Signals
Posted at 12:15 p.m. on Dec. 11, 2012
Many have noted that a significant portion of the Federal Reserve’s ability to boost the economy is the market’s belief that the central bank will keep its word and continue looser monetary policies for the foreseeable future. For now, it seems to be working according to the Wall Street Journal.
“Right now the market is taking the Fed at its word that it will be the middle of 2015 before rates are allowed to rise… The Chicago Mercantile Exchange even provides a handy online tool that crunches the numbers, computing a probability at different FOMC meeting dates. The odds of a rise from the current range of 0 to 0.25% on Wednesday are zero. Go out one year and the picture is hardly different, with a nearly 95% probability of the same.”
“The market is implying that either the Fed will choose particularly ambitious targets for ending stimulus, or that the economy is in rougher shape than we think.”