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Market experts lukewarm on Fed statement as Dow fluctuates

August 9, 2011 | 12:41 pm

Marketsphoto The Federal Reserve’s policy-making board said this morning that economic growth has been “considerably slower” than expected and would likely warrant "exceptionally low" levels for the Fed's key rate through mid-2013. There were three dissents, a sign of internal tension about the best course for the economy. The major stock market U.S. indexes fluctuated on the news in volatile trading. Here’s what some experts had to say:

Axel Merk, president and chief investment officer at Merk Investments in Palo Alto:

“They want to make it very clear to the market they want those rates to be as close to zero as possible. They are saying outright we are not going to raise the funds rate until the middle of 2013. With words they achieve more than they could have done by engaging in a QE3. They want to keep interest rates low so the economy can move ahead. Having three people dissenting at the Fed is most unusual. That’s going to raise a lot of questions. People are going to question how powerful [Federal Reserve Chairman Ben] Bernanke is going to be.”

Gary Flam, equities portfolio manager at Bel Air Investment Advisors in Century City:

“I don’t think the Fed did anything that wasn’t anticipated in advance. They talked about how economic activity is slower than was thought of at their last meeting. They implied they’re going to do whatever they can, without being specific, in terms of supporting the economy. Mid-2013 might be longer than some people expected. So they said they’re going to be lower for longer. The market reaction is shorts who didn’t want to step in front of any upside catalyst from the Fed get emboldened when they don’t see anything dramatic from the Fed.”

Quincy Krosby, chief market strategist at the Hartford:

"The economy is slowing. All the Fed did today was acknowledge that. They’re almost forcing investors to take on more risk. If rates are going to be that low for that long, perhaps you will need to move over into equities."


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-- Stuart Pfeifer and E. Scott Reckard

Photo: A trader on the floor of the New York Stock Exchange Credit: European Pressphoto Agency