The Exchange

Waiting on the Fed: Here We Go Again

The Exchange

By Marek Fuchs

As traders wait on the Federal Reserve, putting off any major decisions until they hear the latest word in FOMC logic and intentions, it's worth noting that, from finance to literature, little good comes from slipping into a state of suspended animation.

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Reuters

“Defer no time,” wrote Shakespeare. “Delays have dangerous ends.”

Yet here everyone goes again, waiting on Fed chief Ben Bernanke to speak on Wednesday following the FOMC announcement and economic forecasts. Will the Fed give hints of cutting back on quantitative easing for qualitative reasons? Inquiring minds need to know – so let's stay frozen in time until we find out.

Problem is, scan the media and all you get is headlines that change with the direction of the market. Traders, too, are lurching about.

The headline flow

On Friday, this NBC News headline was typical: Stocks close in the red on concerns Fed will pare back stimulus. Got that? Waiting was taking the form of near panic. But by Monday morning, the waiting magically held hope and this Reuters headline was the order of the day: Wall Street gains on Fed hopes after weekly loss.

On Monday a story by the Financial Times, which hinted at the possibility of the Fed tightening its easy-money policy sooner rather than later, caused a temporary blip downward in a market that had been firmly up for much of the day.

So what will end this volatility? The Fed, many agree, will have the answers for us on Wednesday. Never mind that the Fed seems decidedly undecided itself and speaks in a manner so cryptic as to make their intentions almost imperceptible: Wednesday is the day!

At issue is whether the Fed will signal a change to its monthly $85 billion bond-buying spree. The program is designed to lower interest rates and spur asset prices, leading to a viable recovery. So far, the Fed has pumped enough liquidity into the system to raise the Titanic, and the results have been mixed at best. Will they now, in the jargon du jour, “taper?” Or will they opt for “QE7,” as @JCnyc4 joked on Twitter. We wait. And wait.

But what is the history of waiting for an answer? Not good.

Malingerers – from those who wait for a single economic statistic for clarity to characters in “Waiting for Godot” and “The Iceman Cometh”– tend to get into trouble or, at best, miss out.

Disappointment at the end of the tunnel

Waiting often ends in disappointment and dissatisfaction.

After the stock market crash in 1987, Wall Street fixated on precise levels that would be cut from the United States deficit. Though the numbers were small and the usual assemblage of smoke and mirrors existed, Wall Street acted like the future of mankind depended upon this. The figures were soon forgotten in a historically higher stock market and budget deficit numbers that make the ones thrown around in late 1987 look downright quaint.

And the cycle continues. Almost a year ago, the media were telling us how the Fed’s words would clear everything up for us. Said a Wall Street Journal headline on July 31, 2012: Fed Could Pull Trigger to Save Economy Wednesday.

Now we seem to be in the exact the same spot. Waiting for the Fed on Wednesdays hardly has a good track record.

And why should it? After all, seeing the economic system, with all its intricacies and complexities, through the narrow frame of a single announcement on a single day probably defines simplistic and foolhardy. In this sense, the Fed is currently serving as a tool of distraction, sucking attention from worthy topics such as FedEx (FDX) earnings, which also come Wednesday and may signal the direction of the economy, or Oracle (ORCL), an obviously important technology company that's due to report on Thursday.

So why do we mindlessly wait on The Fed at our own peril? Getting ourselves into trouble while waiting seems to be bred into our bones. The stories are as old as the bible. Even in modern day sports, waiting for NBA star Dwight Howard to make up his mind about which team he'll be joining has turned into a theater of the absurd.

But here we are, once again waiting for those big, defining words from the Fed, the words that will finally, finally bring clarity.

Or not.

Perhaps the best way to sum it all up is to paraphrase Shakespeare on the issue. “Defer no time,” he might have said, if being interviewed on CNBC. “Delays – at least when waiting for the Fed – have dangerous ends.”

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.

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