Gold has pushed back above $1600 this morning (and +2.6% year-to-date) as it appears the Hilsenrath-rumor is sinking in and the day of reckoning printing draws nearer. There was little new in the statement, as we have stated, but its timing and specificity is to be noted though we, like BofAML are more predisposed to expectations of a rate extension next week to mid-2015 followed by NEW QE in September (with a disappointed equity market slump in between that 'enables' NEW QE). The herald cry from every hypocritical CEO and retired banker this morning appears to be "but, but, but the central banks have to do something" - even if they 'know' the economic impact is nil - as pre-emptive omnipotence has always worked before.
BofAML: Fed action is likely in the next several months
The Wall Street Journal is suggesting that the “Fed Moves Closer To Action.”
Originally posted on the WSJ Online late yesterday it helped spark an end of day rally in equities (even with the rally equities finished down on the day) and a bid in Treasuries. Today, the article appears on the front page of today’s Wall Street Journal, Jon Hilsenrath, argues that “Federal Reserve officials, impatient with the economy’s sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring. Many officials appear inclined to move unless they see evidence soon that activity is picking up on its own.” The last statement is important because as we have argued the Fed does not need to see a further deterioration in growth to spark more monetary easing but rather no meaningful pickup from today’s sluggish pace.
Further, Hilsenrath notes that “central bank officials could take new steps at their meeting next week though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.” Overall, this article is very much consistent with our view. In our view, the Fed isn't quite ready to launch QE3 yet – would prefer to see more data – but could extend forward guidance to reflect the recent string of disappointing data at their August 1 meeting. We continue to expect a rate extension next week to mid-2015 followed by QE3 in September.