Remember the old days when the Fed held a little Mystique? When the markets had to decipher the Fed quatrains and try to determine exactly just what they were thinking? Glory days they will pass you by but today perhaps we can relive those glory days. The days before Fed Transparency and a meeting where not everything is a given and every action has been telegraphed. Today the markets may get a glimpse of those old glory days.

With the G20 getting ready to announce that they were prepared to do what it will take to back the Euro zone the question now becomes will the Fed? As emerging market economies finally step up to the plate pledging 456 million dollars to the International Monetary Fund which up until now has fallen mainly on the backs of US taxpayers all eyes turn on Federal Reserve and Chairman Ben Bernanke to see if he responds to market expectations and take steps pump up the faltering US economy.

Let's face it, despite the Fact that the Fed Chairman in testimony dampened expectations of an all out quantitative easing printing party, the QE vigilantes seem to be again pricing in another round of stimulus. Fed Fund Futures have seen decreasing odds of any action by the fed anytime soon. Dow Jones reports that the chances of rates even rising even two years from today are viewed as increasingly slim. The thinly-traded November 2014 fed-funds futures contract priced in only a 40% chance for committee to raise rate to 0.5% by then, down from a 48% chance Friday and a 66% chance Thursday. The Long end of the curve is also battening down the hatches as the 30 year yield fell to the lowest level in 2 weeks as it would seem that it the market is anticipating at the very least the Fed to twist again like it did last summer.

With Europe turning its attention to Spanish Bond yields which are hitting post Euro zone highs the Fed is running out of excuses to stand pat. In the US unemployment has stubbornly hovers over 8% for the last 40 months in a row. Inflation pressures have eased as oil prices have come down dramatically. While the core rate is still above 2% deflation is not the issue so Instead of a full out QE perhaps the Fed will lean more toward twisting. Still with the European situation and the emerging markets kicking in cash the Fed may feel a bit of pressure to step up and try to wow the market.

The question is whether the Fed can shock and awe the US economy out of its employment deficiencies by printing money or will that just juice up oil prices?

The oil market seems oblivious to growing geopolitical threats mainly because we are awash in supply. Obviously if the Fed goes to a full scale QE then oil should rebound quite nicely. At that point it will not be about supply but the Feds ability to devalue the dollar and make it look as a slightly less attractive haven against a world in turmoil. Of course a weak dollar along with our abundance of natural gas could boost manufacturing and if Europe stabilizes war may actually have a customer for those goods.

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Phil Flynn