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Julia Coronado of BNP Paribas and Carmine Grigoli of Mizuho Securities predict the Fed’s next move.
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Points we asked the question what are the odds that the Fed announces.
It will extend Operation Twist or will they do more QE quantitative easing or -- they're not going to be any policy change.
At all we are now exactly 28 minutes away from the decision let's get right to our -- pregame show.
Juliet Coronado is North America chief economist for BNP Paribas.
Carmine the goalie is chief investment strategist for Mizuho securities but before I get to both -- I want to show our viewers at home what each of you are predicting we broke down.
What each of you are looking at right now with regards Operation Twist each say it's about 5050 with regards to getting -- quantitative easing.
Julie is say 25% chance Carmine less than that and that the Fed does nothing again Julius -- 25% Carmine.
You still a better chance the -- and Julian fox to you if we do get the obvious answer 1230 which is an extension of Operation Twist what -- that.
What do you think happens overall to the mortgage market at the end.
-- I don't.
We're gonna get a lot of reaction.
In markets if we get Operation Twist extension as we expect now keep in mind there's two ways the Fed can go about this -- actually there's.
A lot of different ways that that can go about this they can go -- -- announce a twist with a hint that QE is to come.
Or they can announced just a package of twist for the next say five or six months and assets so I think.
That option would be more disappointing.
Twist with a hint of Q -- In the works would certainly be I think provide a little bit more encouragement for them market and as you noted the mortgage market in particular.
Okay with a twist of -- Carmine.
Are we set ourselves up and stocks here for a huge disappointment how -- the market have been so certain the Fed would do something.
Well we've had a pretty strong rally here since the beginning of the month over about six and a half percent I think that largely reflects the extension of Operation Twist.
If you do get -- I think you could see some profit taking.
I think ultimately the stock market will overcome that.
We've had -- the rebound in the equity market does also reflect the fact that sentiment was very bearish the market was deeply oversold.
So there -- a number of factors behind it but the crisis in Europe continues to deepen and that is troubling.
You know I would ask it is -- the reason I brought up in particular the issue of mortgages because the Wall Street Journal lot of the markets -- this morning has been about the senatorial.
And the Wall Street Journal talking about the great credit divide Julia and they say that it's still.
The Fed can actively look at other fruits of their labor which means that more consumers are getting credit more businesses are getting credit all of this.
Is for nothing what do you make of that line.
Into -- when I read that article I said I thought that that was a reason that the Fed is going to be shifting back towards what they called credit easing.
Rather than just quantitative easing and quantitative easing just an amount of money focused on treasurys.
Credit easing does signal would signal that they're focused on mortgages.
Really trying to drive the mortgage rates down this is a good time to do that actually we've gotten the expansion of -- and we've gotten be a reduction in refinancing fees upfront fees for government mortgages.
Both of these have led to pick -- in refinancing.
If that had fed piles into this and lowers rates and really kind of gets a little bit more momentum going I think that that could be a good thing and we could see a more meaningful response.
More meaningful relief to for people who haven't yet been able to experience the benefits of the low range.
And -- car line if the Fed stops -- simply extending Operation Twist for a few months.
We talk a big disappointed they do more I mean haven't worked yet for the economy.
I'm yeah the economy is troubling I think Europe and how that's affecting the US I think is a major issue here.
Today and Procter & Gamble come out and say that the economy's weakening not only here but also in Europe.
That's affecting earnings you are going to encounter.
Second quarter earnings reports and in in about a month.
In full force and I think that that's likely to be a little bit on the disappointing side and that will probably dominate investor thinking going forward.
And -- rock creek and the Fed's credibility and the end here they told us that they're gonna keep.
Rate -- for 2014.
Some -- saying 2015.
Could be the new number here.
Is the Fed's credibility -- -- Well I think one -- channel through which the Fed's credibility might be at risk I mean there's a little.
We -- ways to look at it but you know once again we find ourselves.
Doing more.
And trying to come up with new ways to stimulate the economy so yeah -- you could.
The Fed runs the risk -- people just say you know what they don't they don't have any bullets this doesn't work.
That's a very dangerous situation for the Fed to be and that would tend to argue for surprising the markets with something strongly going straight to Q -- And we're not mess and around.
Surprise the markets with an unexpectedly aggressive package and start building that confidence back up.
Because right now I would say yes the markets are telling the --
