Why the Dow Is on Fire Today
Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Former Treasury Secretary Larry Summers dropped out of the running for chairperson of the Federal Reserve yesterday, leaving current Federal Reserve Vice Chairwoman Janet Yellen all but guaranteed to succeed Chairman Ben Bernanke. This is pushing the Dow Jones Industrial Average up, as Summers was considered more likely to draw down the Federal Reserve's asset purchases. As of 1:15 p.m. EDT the Dow is up 146 points, or 0.95%. The S&P 500 is up 0.8%.
Larry Summers was the Treasury secretary under the Clinton administration from 1999 to 2001 and was director of the National Economic Council for the Obama administration from 2009 to 2010. Summers was President Obama's preferred candidate for chairman of the Fed, but the media and Wall Street have largely opposed him. A wide spectrum of people have been rooting for Janet Yellen to get the job, as she is seen as more dovish and a better leader than Larry Summers.
The Federal Reserve is supposed to be independent, free from the political process to pursue its mandate of low inflation and full employment without the interference of political pressure. Many people believe Summers is too close with the administration, while others have complained that he is too close with Wall Street, having worked for Citigroup, Nasdaq, and hedge fund D.E. Shaw after leaving the Treasury.
Summers was expected to hasten the demise of the Fed's quantitative easing. The actions of the Federal Reserve have taken on an outsized importance in the markets since the Fed started buying $85 billion worth of long-term assets each month. Even the slightest hint from the Fed that it was considering slowing these purchases sent the markets into a tizzy, and the bond market sold off over the summer.
While we won't know for some time who will be the next chairperson of the Federal Reserve, we will get an update from the Federal Open Market Committee on Wednesday. Analysts expect the Fed to announce some slight tapering but otherwise leave in place most of the asset purchases.
After the Fed's meeting, the next big economic news will be the battle over the budget and the debt ceiling. The U.S. government has piled on more than $10 trillion of new debt since 2000. Annual deficits topped $1 trillion after the financial crisis. Millions of Americans have asked: What the heck is going on? The Motley Fool's new free report, "Everything You Need to Know About the National Debt," walks you through with step-by-step explanations about how the government spends your money, where it gets tax revenue from, the future of spending, and what a $16 trillion debt means for our future. Click here to read the full report!
The article Why the Dow Is on Fire Today originally appeared on Fool.com.
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