For the last several months I have argued that the most likely time for the Fed to enact another round of stimulus would be at the June 19-20 FOMC meeting. I first suggested this in my March 13 E-Letter. My main reasoning was that Bernanke would not want to do it after June 19-20 for fear that it would be seen as a political move ahead of the November elections.
As I’m sure you know by now, the Fed elected to extend “Operation Twist” last Wednesday, June 20. Operation Twist is the action whereby the Fed uses cash from the sale or maturity of short-dated Treasuries to buy longer-dated securities, in an effort to bring down long-term rates. The Fed says it will make $267 billion in such purchases and the Twist will continue until the end of this year.
The Fed also revised its economic forecasts downward, suggesting even slower GDP growth in 2012 and 2013 than they predicted back in April. They estimate that the unemployment rate will remain at or above 8% all this year, and then be 7.8% - 8% in 2013. Not a very rosy outlook.
The financial crisis in Europe is back on the front pages. Moody's downgraded 28 Spanish banks on Monday, and stocks cratered around the world. There is a major European summit this Thursday and Friday in Brussels, and this may be the last chance for a solution to the crisis before the Eurozone begins to break apart.
Finally, I end with some thoughts regarding the Thursday's Supreme Court decision on ObamaCare. If the healthcare law is struck down by the High Court, I expect all hell to break loose! The mainstream media and those on the left will have a conniption. No doubt the Obama administration will weigh in on the bashing of the Supreme Court. If the healthcare law or the individual mandate are struck down, it will get very ugly!