English: President Barack Obama confers with Federal Reserve Chairman Ben Bernanke following their meeting at the White House. (Photo credit: Wikipedia)
Other than a rally on Tuesday led by expectations of QE4, the market has wavered around the unchanged line all week. I have to imagine this is related to all of the uncertainty in the marketplace right now. It was a big week for announcements, but not for clarity, leaving traders with lots of unanswered questions.
With this in mind, below are the three most important events driving the markets this week:
Fed Announces QE4:
Additional quantitative easing was expected, so the announcement that the Fed would let Operation Twist run out at the end of the year and move to buying longer-term Treasury and mortgage backed securities in 2013 was no surprise. What that does mean is that the Fed’s balance sheet is going to get bigger. Much bigger. Even $1 trillion bigger if the economy doesn’t start to noticeably improve.
And An Increased Focus On the Jobless Rate:
The surprise lobbed at us by the Fed was their decision to link the federal fund rate to the unemployment rate. They are the first central bank to publicly do this and it marks a pretty significant move away from a focus on inflation and towards a focus on jobs. The new official stance is that rates will stay exceptionally low (0%-0.25%) as long as unemployment remains above 6.5% and inflation projections remain below 2.5%. The reaction to this news has been mixed. Largely this new stance fits in with the Fed’s projections that unemployment will remain high until 2015 and inflation is not currently a concern. They also revised GDP estimates for 2013 down slightly to 2.3%-3% from 2.5% on the low end. The market sold off, closing unchanged on the day, while economists seem confused about what to do with this new strategy. If you geek out over economic policy, this was a big week for you.
Fiscal Cliff Negotiations Go Behind Closed Doors:
Finally, negotiations between the President and Congress have moved out of the spot light (mostly) and behind closed doors. As any executive would tell you, nothing gets done in the public spotlight, so this seems to be a good sign. The dangers of actually going over the Cliff are debatable and depending on who you ask, could be disastrous for the economy or no big deal. Personally, I think the market has baked in a resolution to the fiscal cliff by year end and if politicians are unable to come to agreement, the markets will get roiled. Hopefully, we don’t have to find out whether I’m right.
Netflix ran into an interesting predicament leading to much discussion on the Street over what constitutes “Fair Disclosure.”On December 7, Netflix ($NFLX) announced that they may face an SEC civil suit over comments made by CEO Reed Hastings on his Facebook page. In short, Hastings posted some operational numbers on his Facebook wall without also disclosing that data in the Reg FD acceptable form of a press release or 8K filing. This has raised a number of questions and many calls for the SEC to take a new look at their disclosure rules. Are social networks so prevalent today that they should be considered acceptable disclosure channels? Treasury & Risk seems to think so, but Deal Breaker doesn’t agree. As for me, I’m still on the fence.
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