This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Ponsi: What to Expect From the Fed

NEW YORK (TheStreet) -- So what's it going to be? Will the Federal Reserve, inspired by a percolating job market, cut quantitative easing by a significant amount? Will we see a taper in the $10 billion to $20 billion range? Will the Fed present a definitive plan for future reductions in its bond-buying program?

Here's my call: There will be either no taper today or a symbolic $5 billion "mini" taper, at most. And the Fed will provide no significant forward guidance -- at least I hope it won't.

James Bullard, president of the St. Louis Fed, laid out the case for a "mini" taper on Dec. 9, saying, "A small taper might recognize labor-market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014. Should inflation not return toward target, the committee could pause tapering at subsequent meetings."

The data just don't warrant a deep cut to the Fed's bond-buying program. Yes, the employment picture has improved, with nonfarm payrolls averaging more than 200,000 per month over the past four months. Last month's reduction in the unemployment rate was accompanied by an increase in the participation rate, which is a welcome sign. Counterbalance that positive news with a GDP report skewed by excessive inventories and we have an economy that is moving forward but at an unsteady speed.

Now consider inflation, or the lack thereof, and the case for tapering becomes even weaker. Tuesday, the Consumer Price Index (CPI) printed a doughnut, 0.0%, in November. Inflation at the consumer level is running at a meager 1.2% annual pace. With that annual figure well below 2%, and with recent sharp decreases in inflation in some European countries, there is no pressing need to hit the brakes on stimulus.

Where does the incoming Fed chair, Janet Yellen, fit into the equation? Even though Yellen hasn't yet assumed the chair yet, her shadow looms large. Would it make sense for Bernanke's Fed to make any move Yellen would later need to reverse, or map a future course of action that might conflict with Yellen's view? What if Yellen's timeline differs from Bernanke's?

Speaking of timelines, the taper timeline sounds good in theory, but it won't work well in practice. Consider the following statement: "In the next few meetings, we could take a step down in our pace of purchase." Bernanke made that statement nearly seven months ago, on May 22. I'm thankful that the Fed didn't detail any forward guidance for tapering at that time. Clearly, Bernanke and his colleagues at the Federal Open Market Committee don't have a crystal ball, yet that's exactly what they'd need to provide an accurate tapering timeline. There are simply too many variables in our massive and diverse economy.

If the Fed does create a timeline, it will require constant revision as new data are introduced. Imagine the knots we could twist ourselves into trying to decipher how each subsequent morsel of datum might affect various points along the proposed timeline. Let's hope the Fed realizes this type of transparency would be more of a hindrance than a help.

--by Ed Ponsi in New York

Ed Ponsi is the managing director of Barchetta Capital Management, an NFA-registered commodity trading advisory, and also provides educational services through An experienced professional trader, Ponsi has advised a variety of hedge funds and institutional traders. Ed has appeared on CNBC more than 100 times and has been profiled in magazines such as "Technical Analysis of Stocks and Commodities" and "The Traders Journal." He is the author of Forex Patterns and Probabilities, a top-selling book on currency trading and The Ed Ponsi Forex Playbook, which was endorsed by Steve Hanke, professor of applied economics at The Johns Hopkins University. Ed's books have been published in English, Vietnamese, and simplified Chinese.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Our Tweets

Partners Compare Online Brokers

Top Rated Stocks Top Rated Funds Top Rated ETFs