After Europe’s bond move, all eyes on the Fed
Next week the markets will be focused on the Federal Reserve as it details its next big stimulus plan — or not. This week, the European Central Bank announced plans to buy the debt of struggling countries in the eurozone.
But don’t expect the latest development across the Atlantic to have a huge impact on the Fed’s thinking.
“I don’t think that the announcement in Europe is going to change the monetary policy stance of the United States,” said Columbia University economist Martín Uribe.
But it does matter. Economist Hugh Johnson thinks the main thing the moves in Europe will do for the Fed is provide relief. “It’s hard to predict, but I think this gives them cover to say take a small step, not a big step.”
A big step would be a move worthy of the name QE3, a sequel to the Fed’s colossal bond-buying spree designed to boost the economy by suppressing interest rates.
“I don’t think that’s in the cards,” said Johnson. “I think it’ll be something short of that, such as promising to keep short-term interest rates low well into 2014 and probably 2015. That may be the extent of it.”
So a strong move in Europe could be met with a lighter touch in America.
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