Hard to Believe but the Fed Just Isn’t A Big Deal Today
The Fed is highly unlikely to take any action. The ECB has taken the spotlight. Either the ECB will act aggressively tomorrow and the Fed may be able to hold off on more stimulus here, or the ECB will fail, and the Fed will likely have to brace for a stock market swoon and a return to ever weaker economic data. In either case, the Fed is better off waiting to see how the ECB and EU play out.
I expect the Fed to release a very dovish statement. They will be more dovish than last time, but mention they are vigilant and that they see some signs that the Q2 weakness is diminishing. The market won’t like it, but they won’t hate it either.
The misconception that the market currently needs QE should have been dispelled with today’s ADP report. While ADP is notoriously unreliable, it was strong enough to reduce the chance of QE, yet stock futures brushed it off.
Stocks need the ECB and Europe to act. That is the key. Without action from them tomorrow, I can see an immediate and vicious sell-off in stocks. With action, we can head to the year’s highs.