Does Bernanke Really Have to Act Now?
Federal Reserve Chairman Ben Bernanke will give his semi-annual monetary policy testimony to the Senate Banking Committee this morning. The Street is obsessed with the idea that Bernanke must show his hand on a third round of quantitative easing, or QE3, now. Most traders insist if the Fed wants to act, it has to act now, in the July 31 FOMC meeting, saying that the next meeting on Sept. 12 is too close to the presidential election.
I'm not so sure about this. First, just because the U.S. economic data have weakened a bit since the last FOMC meeting on June 20, does it automatically mean that the Fed will act?
Also, Bernanke is low on ammo — didn't the Fed say as much in its June FOMC minutes? The Fed said that "it would be desirable to explore the possibility of developing new tools to promote more accommodative financial conditions." That sure suggests it is running out of options. Why wouldn't Bernanke just seek to buy more time?
Also, remember the Fed extended Operation Twist last month ... is Bernanke really going to throw another curve ball so soon after that announcement?
And who says it can't act in September, regardless of the elections?
1) June Consumer Price Index came in mostly in line, with declines in energy a big help. Fed watchers will argue this will give the Fed more room for additional QE3.
2) Goldman Sachs continues the win streak for financials, rises 2.1 percent pre-market, boosting other big banks, after beating on the top and bottom line. Surprise, surprise: Investment banking fees, fixed income/currency/commodity trading were a bit stronger than expected. It also bought back 14 million shares, more than most thought it would.
And remember, expectations were low: The stock had gone from $125 to $100 last quarter.
Goldman is the fourth big bank in a row to post better-than-expected results. CEO Lloyd Blankein said market conditions deteriorated in the second quarter, which caused the bank’s clients to trade less and make fewer deals.
Bottom line: How to read this? Can you make an argument that 2012 consensus estimate —currently $10.30 — should INCREASE?
3) Rio Tinto slumps 1.5 percent pre-market after reporting flat second-quarter iron ore production and trimming its 2012 production forecast for copper, choking coal, and thermal coal. Rio said it expects aluminum output to be modestly higher. Despite cutting expectations for several commodities, the company said it plans to continue ramping up iron ore output, even amid concerns of weakening demand from top consumer China.
4) Nabors Industries falls 1.1 percent after warning its second-quarter earnings will miss the Street’s expectations due to record low natural gas prices and weak demand. Nabors sees second-quarter operating profit of $220 to $230 million. Analysts, on average, were expecting operating income of $251.7 million.
—By CNBC’s Bob Pisani
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