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Credit Insights

Waiting for Godot or the Fed, Whichever Comes First

Whatever form this next round of liquidity enhancement may take, it is sure to cause significant volatility this week.

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Credit markets felt relatively slow last week as investors waited for the elections and the Federal Reserve's next move. As the characters in the two-act play busy themselves while waiting for Godot to arrive, the credit market busied itself by debating the timing and size of the Fed's plan for the second round of quantitative easing.

Economic indicators released this past week were generally positive. Third-quarter GDP growth, at 2.0%, was in line with consensus, jobless claims were lower than expected, and durable goods orders were better than expected, but the market mostly ignored the fundamentals and speculated on the coming week's events. The economic releases indicated that the economy continues to grow, albeit at a sluggish rate that neither spooked the market into thinking we are heading for a double dip nor encouraged it enough to think the Fed might delay implementing QE II. Whatever form this next round of liquidity enhancement may take, it is sure to cause significant volatility this week.

David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.