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Watching the Fed

Heidi Moore Jan 24, 2012

If you want to make money in the markets, it’s not enough to be just an investor anymore. You have to be an amateur psychologist, studying what’s going on in the heads of Ben Bernanke and the Federal Reserve’s 17-member committee. For years, the Fed maintained a powerful hold over crucial information about interest rates. It preferred to let the markets speculate — sometimes wildly — about where interest rates might go.

It was an inefficient method, considering how panicky investors would get before every meeting. So this week, for the first time, the Fed will no longer be an impenetrable monolith. It’s going to be upfront. Straightforward. Transparent, even. As of the end of its meeting tomorrow, the Fed will let its committee publicly reveal what they think will happen to interest rates in the coming months and years. Will this be good news for the nervous markets?

Andy Brooks is the head of U.S. equity trading at T. Rowe Price. He says in spite of some signs of growth in the U.S. economy, he’s expecting to hear caution coming out of the meeting tomorrow. Brooks warns there’s still a fear that if we don’t go slowly, the economy could all too easily slip into a long-dreaded double-dip recession.

Brooks acknowledges there’s still “a lot to work through on the housing crisis…and a lot of people are unemployed.” He says the Fed is “being properly judicious in fostering this growth, and I would guess they’ll drag their feet on raising rates.” When the Federal Reserve finally does decide to raise interest rates, Brooks says that can be a good thing for stocks.

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