photo credit: matthewjetthall[/caption]The jobs report from last Friday was devastating because the expectations were not met and all the market watchers are looking to see what the federal Reserve will do, if anything to resolve our ongoing economic woes. USA Today is reporting that the Federal Reserves board is expected to act to stimulate job growth, but there are different strategies to go about reaching that goal.
Many are saying that the Feds might take a passive posture, whereby it decides to purchase more mortgage backed securities or Treasury bonds to lower interest rates. This move would be considered aggressive by pundits, but we are told that it might trigger runaway inflation, a decision and scenario the hawks on the Fed board will try to thwart.
Some are predicting that the Fed will take a middle ground by holding on to its massive amount of securities so that interest rates do not rise; this was not the posture it took the last time it was in a similar situation, but the fiscal hawks seem to have more influence at this juncture. Other economists are saying that the Fed might reinvest the proceeds from maturing mortgage securities in new mortgage or Treasury assets because this move has the potential to spread the benefits beyond the housing sector… and especially bearing in mind that the fact that Treasury bonds are easier to sell. This would generate $150 billion, but the feds will need to fire more bullets because the effect on interest rates would be negligible.
Nothing discussed so far will generate the jobs that were lost during our down turn and this is the important barometer what is driving the negatives of the markets and the overall economy. Whatever move the feds make will reflect in the market moves – if it goes north, then we will know the markets makers were giddy about the move.
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