In the opening scene of the wonderfully silly Scary Movie, the sultry heroine comes face to face with the masked killer. She glances down at an array of conveniently placed objects: a gun, two knives, a grenade and a banana. She ignores the weapons, of course, and grabs the banana.
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I think the Fed is in a somewhat similar position. They could attack the global slowdown and join with competing central banks, all of which have taken monetary stimulus to preposterous extremes.
Or, they could stick to their congressional mandate of maximizing employment, stabilizing prices, and moderating long-term interest rates. To equity investors, it would be the equivalent of grabbing the banana: a choice that would almost certainly lead to the death of the ongoing meltup.
This morning’s Q1 GDP read only increases the difficulty of their choice. While many FOMC voters would no doubt prefer to thumb their nose at presidential interference, no one wants to be known as the one who pricked the equity bubble.
Our current analog suggests that whatever choice they make, investors will be disappointed.
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