Gaming the Fed
By Rev Shark
RealMoney.com Contributor
5/10/2006 8:50 AM EDT
"Decisiveness is a characteristic of high-performing men and women. Almost any decision is better than no decision at all."
-- Brian Tracy
Although the Fed is likely to be very decisive about raising interest rates a quarter point for the sixteenth straight time, the decisiveness is likely to end there. Market participants would love to have some clarity about where interest rates are headed over the next few months, but unfortunately not even the Fed knows.
Market participants are hopeful that Bernanke's comments during his Congressional testimony about a possible pause in rate hikes might find its way into today's policy statement. However, if it does we should expect some very strong language that a pause does not preclude further hikes.
There really isn't any great mystery about the Fed's approach right now. It wants to consider forthcoming economic data and doesn't want to lock itself into any particular approach. Market participants who want clarity simply aren't going to get it, and it is just downright silly to expect it.
So where does this leave the market? Is the market likely to be disappointed by a lack of FOMC clarity? Or will the bulls become overly excited and drive us up if there is talk about a possible pause? I believe the likelihood is that the Fed will be sufficiently vague, and we'll end up with uncertainty and some quick swings.
Cisco did a nice job of sandbagging the after-hours players who jumped in on the strong-looking headlines only to learn that much of the strength was due to a tax reduction rather than operational excellence. After trading up $1 last night the stock is set to open down this morning. The technology sector remains in disarray but you have to wonder at what point the poor news flow will be completely discounted