In the last half hour of today’s trading session, the stock market turned back down from a brief rally off the day’s lows and threatened to close below important technical support. Suddenly, with ten minutes to go, the Dow jumped by 60 points into the close and a closing breakdown was averted.
What caused such a reversal? Jon Hilsenrath of the Wall Street Journal has been a favored reporter with good access to Federal Reserve members. In fact, many have accused Hilsenrath as being a mouthpiece through which the Fed plants desired stories. His article, released in the last few minutes of today’s trading session, will do nothing to dissuade his detractors. The headline read, “Fed Sees Action if Growth Doesn’t Pick Up Soon.” The timing of the release gave the TV news stations just enough time to post the headline and attribute the last second market rally to the expectation of soon-to-come further stimulus. That spurred nervous shorts to cover, gave a little push to the rally and allowed the market averages to close above important support.
When people actually read the article, they found nothing new. The Fed might act next week or might wait until the following meeting in September. Beyond that time line, Hilsenrath did little more than list the possible actions that Chairman Bernanke had enumerated in his recent testimony before Congress. With nothing new to convey, what other motive but to provide market support would account for the article’s release at an unusual time just before the close?
Two or three minutes after the close, Steve Leisman, a CNBC economic reporter, came on air to explain that there was no new news here. Leisman who typically is supportive of Fed actions on air, is another favored reporter and has been given the privilege of asking the first question at recent Fed news conferences. Leisman’s appearance also appeared well-timed. The story had served its purpose. It said nothing new. Leisman’s comments were then designed to dampen further interest. “Let’s not dwell on this.” The Fed wants to be able to roll out a similar “surprise” announcement when next needed.
Jawboning has long been a Fed tactic, and it helps to have accomplices in the media. I suspect that the Fed is conflicted about more stimulus. The majority, and certainly the Chairman, seem to believe it is needed. After seeing little positive effect on the economy from past actions and diminishing effect on stock prices with each new rescue action, they have to be concerned about the effectiveness of any additional action. The closer the calendar creeps toward the election, the more the Fed will inevitably be accused of meddling in the political process with any new policy move. Most worrisome, however, is probably the fear of perceived ineffectiveness. Should they attempt QE3 or some variation and the markets fail to respond for more than a few days, they could well be seen as out of bullets. Therefore, they are hoping that holding out the hope of future action will serve their purposes. Thus we see news releases like today’s, and we can probably expect more to come.