The Dow Goes Off The Sauce (Again)

The trick could only run so many times. After weeks of boosting stock prices on quarterly earnings that were better than they claimed to expect, fund managers and traders have started heeding the many doubts standing between us and an economic recovery. In other words, they don’t know what to expect.

The “market mood,” of course, hinges on the two-day Federal Open Markets Committee meeting that kicked off this afternoon. Not that the outcome is that suspenseful: everyone expects the Federal Reserve to keep rates near zero. But the credit free-for-all that finally loosened the debt markets after last year’s cataclysmic freeze might be nearing the end. Trigger-happy bond traders are figuring they’ll see a New Year’s rate hike, with more to follow in the first half of 2010.

Oh, the furrowed brows this logic can cause. Reuters reports that this anticipation is premature since Fed Chairman Bernanke has just reiterated to Congress he’ll keep rates low for as long as necessary. But a preemptive market move can create higher rates independently of the Fed, and further slow the recovery by punishing consumers who work up the nerve to borrow money.

The other worry is whether Fed chairman Ben Bernanke has the bespoke touch to steer us toward normality. After moving heaven and earth to unfreeze the debt markets last year, Bernanke has to choose when to take them off life support. One brute touch – a higher interest rate, an impertinent remark- and the entire economy can sink again .

Which brings us to the deepest uncertainty of all, as clouds are also gathering over the Fed Chairman himself. As his term nears its end, there is wild speculation whether President Obama will reappoint Bernanke to another term or gamble and change horses mid way through the race.

Hm. Betting on horses seems a lot peppier, doesn’t it?

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