From a market perspective the confidence victory for the Greek PM is a relief but rather than being an incremental positive, it is just a lack of a negative as this political turmoil and parliamentary vote next week is just to satisfy the bailout deal that was struck a year ago. Assuming passage of the budget and an agreement on bailout Part 2 can be reached amongst all parties involved, this fire should be put out for now but only to be revisited in the next year or two as the Greek economy struggles to grow. That reality quickly shifts the market focus back to the global economy and its growth prospects and the Fed meeting today will highlight that. Bernanke will acknowledge the sluggish recovery and it’s why he’ll state that while its latest round of asset purchases will end next week, the size of their balance sheet will remain unchanged as maturing debt will get reinvested in US Treasuries. In terms of doing more (boost asset prices again) or doing less (aka exit), he will unlikely commit to anything with the huge amount of uncertainty on the outlook. Also, the staflation the US economy is now experiencing puts handcuffs on the Fed’s ability to do something more, which is a good thing.
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