Wednesday, September 5, 2012

Fed Awaits ECB and Payrolls Reports

The Thursday meeting of the European Central Bank (ECB) is vitally important to the Federal Reserve and Chairman Ben Bernanke, as the promised response to the ongoing debt crisis in Europe will be a large part of what the Federal Reserve may or may not do at its meeting on September 12 and 13.

Ever since ECB President Mario Draghi promised to taek whatever action was needed to attempt to solve the debt crisis, it has placed support under the markets, which have awaited to see exactly what it is Draghi will do.

Also of importance to the actions of the Fed will be the payrolls report due on Friday, which will surely have a major impact on the decision of the Federal Reserve and Ben Bernanke going forward.

Already one major element has ramped up the possibility of QE3, which was the disappointing manufacturing numbers recently released by the Institute of Supply Management, which showed manufacturing in the U.S. contracted by the most in over three years. Some think this could be enough for Bernanke to pull the trigger next week.

If payrolls drop below 125,000, which appears to be the targeted number for a decision to be made, then it's very likely Bernanke will implement another round of quantitative easing.

A secondary element in the mix is exactly what the ECB does decide to do. If it's significant and deep, Bernanke and the Fed may get some wiggle room to wait till later in the year to throw more money into the U.S. economy.

While the typical reporting that opposition in Europe could suppress some actions, the recent past has proven that to be more political posturing for the sake of constituents, especially in Germany.

In the end, of the ECB implements strong measures, it will without a doubt pass again, even while the press reports it as being opposed by some in the euro zone.

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