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New Fed Transparency Buys Time For The Stock Markets

|Includes:COWN, KBW, Inc. (KBW), LUK, MS, PJC
This afternoon, the Federal Reserve Bank announced that they would be more transparent regarding their balance sheet in 2012 and beyond. The central bank also said that they would release each Federal Open Market Committee member’s individual forecasts for the appropriate level on the target federal funds rate in the fourth quarter of the current year and the next few years. Currently, the Federal funds rate has been held at zero to a quarter percent since December 2008. The federal funds rate is the overnight lending rate from the Federal Reserve to the large major banks such as J.P. Morgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), and Bank of America Corp (NYSE:BAC).

Many traders and investors are viewing these new changes by the central bank as a way to figure out when the next quantitative easing will take place. Everyone should remember that the stock markets have surged sharply higher after every quantitative easing program since late 2008. The last $600 billion quantitative easing program ended in late June 2011. At that time, the Dow Jones Industrial Average (DJIA) plummeted from 12,700 down to the October 4, 2011 low of 10,400. Today the DJIA is trading around 12,415.00.

Nicholas Santiago