Stocks: Don't Hold Your Breath For More Fed Stimulus

The Federal Reserve eased monetary policy to boost the flagging recovery, announcing a modest extension of "Operation Twist", that is the purchase of long-term bonds financed by the sale of short-term paper. The stock market initially sold off but has bounced back.  In its statement, the Fed said:

By Eric Parnell:The die has been cast once again. The U.S. Federal Reserve announced on Wednesday that it would extend its latest stimulus program known as Operation Twist through the end of the year. As I've stated in past articles, I supported QE1 but have strongly opposed all Fed stimulus programs since. And the latest move is no exception.

WASHINGTON — Federal Reserve Chairman Ben Bernanke strongly defended the U.S. central bank’s bond-buying stimulus before Congress on Tuesday, saying its benefits clearly exceed possible costs. The Fed chairman also urged lawmakers to avoid sharp spending cuts set to go into effect on Friday, which he warned could combine with earlier tax increases to create a “significant headwind” for the economic recovery.

By Eric Parnell:The market has Fed stimulus on the mind once again. Just like a junkie looking for the next fix, investors are increasingly clamoring for the Federal Reserve to stand ready to launch another stimulus program with the economy weakening and the market down -7.5% from its April 2 peak. Never mind that the stock market is still UP +5.6% for the year on the S&P 500 through Thursday's close. Never mind that the last several rounds of stimulus have failed to generate a sustained economic growth recovery.

I'D LIKE to express a bit of disagreement with my colleague's assessment of the European Central Bank's recent behaviour. He writes:

WASHINGTON – The Federal Reserve is expected to announce a fresh round of bond buying on Wednesday as part of its efforts to support a fragile economic recovery threatened by political wrangling over the government’s budget. The central bank looks certain both to extend its purchases of mortgage-backed debt and replace another expiring stimulus program with a new bout of money creation.

By Eric Parnell:All eyes are on the Federal Reserve this week as they convene their latest Open Market Committee meeting on Tuesday and Wednesday to discuss monetary policy. A primary focus of investors is whether the Fed will hint about any future policy action.

By Eric Parnell:As the stock market continues to celebrate, the U.S. Federal Reserve finds itself in an increasingly tightening box.