Reality bites: With the Fed out of ammo, investors are outta here

David Brancaccio Sep 22, 2011
HTML EMBED:
COPY

Reality bites: With the Fed out of ammo, investors are outta here

David Brancaccio Sep 22, 2011
HTML EMBED:
COPY

What’s behind the market meltdown today? Two small clauses in yesterday’s statement by The Federal Reserve: that there are “significant downside risks” and “strains” in global financial markets.

But didn’t we already know this? Haven’t the indicators (unemployment, housing, retail outlook) all pointed in this downward direction for months now? Not to mention everyone knows Europe’s been unable to take any meaningful action to solve its debt crisis. Why did the markets pick now to fall apart?

Brad Hammond’s a senior economist at the retirement giant TIAA-CREF He says it’s a matter of investors looking to the Fed, hearing yesterday’s plan for action (the bond buying/interest rate lowering program known as Operation Twist) and realizing that the Fed has run out of effective tools to spur economic growth. That means the monetary side of the equation is done trying to revive the economy.

Hammond says the only hope now is a fiscal solution of some kind. Some combination of raising taxes and cutting spending, in other words. Unfortunately, that means action by the government. And with Congress and the President now in election mode, that means a lot of posturing on Capitol Hill, but no chance of meaningful action to help the economy.

Hammond says more than anything else, today’s market slump is about investors accepting a disappointing reality that, deep down they’ve known all along. So we’ll be in the dumps for a while. But, barring a shock like the eurozone collapsing, the economy probably will bump along, Hammond says. He expects slow, painful growth that won’t help those people who are hurting.

So again, why today? Answer: why not?


Also on the show, FedEx CEO, Fred Smith said today in a call with investors that he thinks we’re in for a sluggish growth period for some time to come as sales of consumer goods like consumer electronics continue to be sluggish. That’s depressing the Marketplace Daily Pulse today.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.