Wednesday is Fed day: Here’s what Wall Street is hoping to hear

At a little after 2 p.m. on Wednesday August 12 the Federal Reserve will be either naughty or nice. From Wall Street’s perspective, anyway.

Naughty, according to Wall Street, would be a press release that confirms the Fed’s view that the economy is in a shaky state but that does nothing to change policy.

Nice, and that sound you hear is bond traders salivating, would be a statement that says the Fed is going to increase its buying of Treasury bonds and mortgages. Both buying sprees–$300 billion for Treasuries and $1.25 trillion in morgages–are drawing to a close and Wall Street would love to hear that the Fed is going to up its buying limits.

That would drive down interest rates–which have been rising lately–and send bond prices–which have been falling lately–climbing.

Without that kind of news from the Fed, bond traders fear that 10-year Treasury notes will fall in price and test a yield of 4%.

 Do I need to remind you that rising interest bond yields aren’t good for the stock market since they make bonds more atractive vis-a-vis stocks?. Read more