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Fed Statement Could Cause Havoc, Says Analyst


Investors are eager to hear from the Fed on Wednesday. And what they say could rock markets.

As you know all too well Tuesday was day one of the Federal Reserve's two-day meeting on monetary policy.

What should you expect?

The Fed is widely expected to keep its key rate near zero, but investors are unsure how optimistic the policy makers will be in their economic assessment — and whether the central bank is considering raising rates later this year to curb inflation.

Bernanke Walks Tightrope

Currently the Fed is walking a proverbial tightrope and in its statement must strike exactly the right tone so as to not trigger fears of inflation or deflation.

I’m hoping the Fed says we’re keeping rates where they are, muses Karen Finerman. Personally, I don’t expect anything dramatic.

Chris Thornberg of Beacon Economics sees the situation a little differently with drama a distinct possibility. Unless the Fed issues a near-perfect statement what they say could roil markets, he suggests.

"This is a very interesting time," he explains "Something very important happened over the last month and that's bond markets became afraid of inflation."

A few months ago the Fed came out with an aggressive policy of quantitative easing -- buying long term bonds to drive down long term interest rates. And it worked until investors started getting spooked about inflation.

"Now investors want to know how they're going to continue quantitative easing but not create terrible inflation. That's what everyone will be looking for."

"I think the Fed needs to outline an exit strategy for quantitative easing," Thornberg adds. "Bernanke needs to tell the bond markets that inflation is not an immediate concern and low interest rates are helping the economy a lot. If Bernanke does not come out with a strong message I think bond prices could drop a lot and in turn that could cause havoc.

The Fed statement comes out on Wednesday at 2:15pm. We'll be all over it on Wednesday's Fast Money.

What do you think? We want to know!

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Trader disclosure: On June 23rd, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (INTC)  & Is Short (INTC) Calls; Najarian Owns (JPM) & Is Short (JPM) Calls; Najarian Owns (ORCL) Call Spread; Najarian Owns (YHOO) Call Spread; Terranova Owns (TER), (XBI), (BTU), (MSFT), (HES), (RIMM), (BTU), (MS); Terranova Is Short (GENZ) Call Spreads; Terranova Owns (GENZ) And Is Short (GENZ) Calls; Terranova Owns (DIS) Call Spreads; Terranova Is Short (XOM) Call Spreads; Finerman Owns (TBT); Finerman's Firm Owns (MSFT), (PBR), (RIG), (NOK), (TBT), (YUM), (WMT); Finerman's Firm Owns (BAC) Preferred; Finerman's Firm Is Short (BAC), (IJR), (MDY), (IWM), (SPY), (USO),(CAKE); Seymour Owns (BAC), (AAPL), (EEM), (FXI), (NOK), (PWRD)