Fisher and Plosser against QE3
Richard Fisher and Charles Plosser, both voting members of the Fed, took preemptive strikes yesterday playing down a possibility of the Fed to once again expand monetary policy in a response to decelerating economy. Fisher said that the Fed “has done enough” to stimulate the economy and Plosser added that “the hurdle (to expand again) this time would be very high”.
These comments actually aren’t surprising – both members are hawks (at least in comparison to the Chairman and others at the Fed) and were reluctant even in respect with the QE2. Should such comments be stated by the Chairman, the impact (dollar positive and equities negative) would be much stronger.
However, even though those comments do not alter the present situation on the market, two things are worth noticing:
- Fisher and Plosser first took opportunity to present their views in front of disappointing data, therefore preventing some dovish members from “setting” market expectations (for potential expansion)
- While those members cannot prevent the Fed from expanding, they still can vote against the Chairman, putting him in an uncomfortable situation; Bernanke might want to avoid this leaning towards expansion only if the economy deteriorates further
Thus the assumption that any disappointments will be compensated by the Fed might not work anymore, taking away the fuel from the (stock market) bulls. A correction on S&P500 futures may still run for at least some 20 points (to 1272 pts.), even if we see some rebound today as the market used a support line around 1285 pts. (a lower limit of a declining channel).
For the EURUSD hawkish comments from Fisher and Plosser do not mean that much – even of there is no expansion in the pipeline, the Fed will postpone a decision on ending reinvestments of proceeds from the portfolio, something that was expected just a few weeks ago. The pair is currently running along the 5th wave of the Elliot structure, heading towards a resistance zone between 1,4940 and 1,5140.
Events to watch – Bernanke in the spotlight
After comments from Plosser and Fisher, the market will be updated by the Chairman today as he speaks (on the outlook for the US economy) in Atlanta (3.45 PM ET, 21.45 CET). This speech can shape expectations regarding Fed actions for the weeks to come and have a critical impact on the dollar and a noticeable impact on equities and commodities as well.
On the data front, we have orders data in Germany (6.00 ET, 12.00 CET, consensus +2,1% m/m), retail sales in the zone (5.00 ET, 11.00 CET, consensus +0,4% m/m) and few releases in Australia, including Westpac sentiment index (8.30 PM ET, 0.30 CET) and the data on home loans (9.30 PM ET, 1.30 CET).
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Przemysław Kwiecień PhD, Chief Economist |
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