Is the Fed’s Stimulus Package and Inflation Time Bomb?

By Luke in Currency Articles | November 3, 2010 18:24 | Tags: , , , , , ,

The Fed’s announcement will be upon us very soon. Traders now wait with baited breath to see whether the Fed will deliver just what everyone expects them to deliver. They will probably restart the asset purchasing program this evening even as growth is expected to accelerate to 2.6 in the second quarter of next year. The concern in the market is that the Federal Reserve could be underestimating the inflation outlook for the US Economy for the second time in less than a decade.

This could substantailly shake things up in the currency and bond markets. By 2012 the stimulus package could easily accelerate inflation past 2%, beyond the Fed’s preffered range. Since December 2008 the Fed has kept interest rates at record low levels and have tried to stimulate the US Economy out of one of the worst recessions since the 1930′s. The asset purchase program expected this evening will extend the the Fed’s aquisitions of $1.7 trillion in treasuries and mortagage debt that finished at the end of March earlier this year.

Tomorrow has a busy calender with plenty of event risk, we have the MPC and ECB rate announcements, the ECB press conference and jobs data from the US. We would expect the markets to respond with volatility. Most analysts are still pitching for further USD weakness and stock market gains although this evenings Fed announcement will undoubtedly set the trend for trade going into tomorrow.

Luke Zorab
Torfx Currency Dealer
(01736) 335285

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