Ed note: We ran this yesterday, but to get everyone excited about today’s big party, we’re running it again.
Tomorrow is Fedapalooza.
In addition to the big FOMC meeting, from which we expect to get guidance on the future of quantitative easing, we also get the Ben Bernanke press conference, as well as a new macro forecast for the economy.
Everyone’s trying to guess what we’ll happen in the market. Will this mark the bottom of the dollar? Will stocks tank? Will the dollar dive if Bernanke isn’t specific enough about ending easing? Everyone has a guess!
Here’s our prediction:
First, regardless of what happens, we expect stocks and rates to move in the same direction as they usually do. If it sounds like the Fed is going to keep its foot on the gas pedal, stocks will move higher, and interest rates — contrary to the idea that QE means lower rates — will go higher as well. If it sounds like Ben is thinking about taking the punch bowl away, stocks will move lower, and rates will move lower as well, even though this means that a major bond buyer is leaving the market.
And then we get to the more specific aspect of our prediction. Regardless of which way things move, bonds will briefly move in the opposite direciton at first. There will be a kneejerk response along the lines of “sell bonds if QE is ending” and “buy bonds if QE is continue” but ultimately this move will be shortlived, and will then fade.
Anyway, that’s our guess. What fun is a prediction if we don’t put a little something on the line?
Obviously we’ll have wall to wall coverage tomorrow.
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