This morning, the major stock indexes are all trading sharply higher at the start of the trading day. Everything looks great in the stock market on the surface. The highly followed Dow Jones Industrial Average is trading higher today by 86.00 points in the first thirty minutes of the session. Many traders and investors seem to be betting on another inflationary push by Ben Bernanke who will be announcing his latest policy statement tomorrow.
You see, the Federal Open Market Committee (FOMC) starts a two day meeting today. Tomorrow afternoon, the Federal Reserve will announce it’s interest rate policy for the United States. Chairman Bernanke will also hold a press conference tomorrow afternoon explaining his actions and taking questions from the press. Many institutional traders are now expecting the Federal Reserve to announce another stimulus program since it’s current ‘operation twist’ program is scheduled to expire. This past September, the Federal Reserve announced it’s latest quantitative easing (QE-3) program in which the Federal Reserve will purchase $40 billion worth of mortgage backed securities (MBS) a month.
The fed funds rate which is overnight lending rate to the large banks such as J.P. Morgan Chase & Co (NYSE:JPM), Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), and Citigroup Inc (NYSE:C) is at zero to a quarter percent. So there is really expectation that the fed funds rate will change tomorrow. The Federal Reserve has already promised that interest rates will remain extremely low until late 2015. While low rates are good for people looking for loans many people do not seem to qualify for loans any longer. So in reality, the savers in the United States seem to get punished as they will make basically zero interest by keeping their money in the bank. The fed funds rate has been at zero to a quarter percent since December 2008.
A fair case can be made that Chairman Bernanke has bailed out the politicians as they continue to spend money at an alarming rate. The U.S. national debt is now at $16.2 trillion and climbing. President Obama now wants the debt ceiling removed before the fiscal cliff deal is settled. Every citizen in the United States would need to pay $51,967.00 in order to pay off the current U.S. debt. Gross domestic product (GDP) remains between 2.0 – 3.0 percent in the United States, This number is rather weak when you consider all of the government spending. According to the Mercatus Center at George Mason University about 49.0 percent of all Americans receive some form of government benefits. These are troubling numbers that could be problematic over the next couple of years.
Traders should view this current stock rally as another inflation prayer by the financial institutions to the central bankers that control the money supply. Wall Street always loved a good inflation created stock rally. Lets see if Ben Bernanke will play Santa Claus to Wall Street and the politicians once again.