“Blessed is the man that findeth wisdom, and is rich in prudence,” King Solomon tells us in Proverbs 3:13-14. “The purchasing thereof is better than the merchandise of silver, and her fruit than the chief and purest gold.” And now, as the Federal Reserve’s Open Market Committee, or FOMC, prepares to meet for the first time in 2014, financial experts are waiting to see if the Fed’s course for the New Year is able to combine monetary decisions with wisdom and prudence.
The FOMC is responsible for overseeing the country’s open market operations, which primarily involve the buying and selling of US Treasury Bonds in markets both domestic and foreign. It works with the Treasury to set the market value for the dollar, and it’s the body most directly responsible for setting the Fed’s monetary policy objectives.
The FOMC gathers for its first meeting of the year this January, and it will meet several more times throughout 2014. This year, decisions about Qualitative Easing version 3, the Fed’s ambitions bond buying stimulus plan, are expected to be high on the agenda. But a new Fed Chair is waiting in the wings as Ben Bernanke exits the seat. It’s generally expected that seat will be filled by Janet Yellen, President Obama’s pick for the job, though confirmation hearings on her nomination won’t be held until next week.
Yellen’s plans for the QE3 and other major issues facing the Fed in the New Year aren’t known yet, though many doubt that much will change. But the direction of that stimulus and the fate of US bonds in world markets are likely to dominate her first months in office.
The decision to taper down the stimulus in a relatively modest way starting in January 2014 came on Bernanke’s watch. Based on economic indicators including employment, inflation and the health of the housing market, the Fed opted after months of indecision to cut back its bond buyup by $10 billion a month – from $85 billion in bonds and securities to $75 billion.
What happens next? As of now, the Fed hasn’t offered more details about the long-term plan, but those numbers may taper down incrementally after subsequent meetings of the FOMC this year, depending on the overall economic outlook.
The fate of the stimulus is tied to other factors such as lower unemployment numbers, rates of inflation and the continued rebound of the housing industry after the collapse of a few years ago. And those factors may be influenced in turn by the performance of the dollar compared to stronger and weaker currencies on the world market. All the pieces of this puzzle are in some way directed by the decisions of the FOMC.
The New Year brings a new head of the nation’s bank and new choices about the policies that govern money both at home and abroad – decisions that could change the future for investors following Jason Hartman’s recommendations for building wealth in real estate. (Top image:Flickr/EGuideTravel)
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The Solomon Success Team