To Taper or Not: The FOMC Doesn't Know the Answer, and Neither Do the Markets

As investors awaited the release of the Federal Reserve's June meeting minutes, tensions were high, and many hoped to gain some clarity about what the central bank was planning to do with its quantitative easing programs and, more importantly, when it may begin tapering its bond buying. Instead, investors were left just as confused, or maybe even more so, about what the Fed will do after reading the minutes. Half the members of the Fed said they thought bond buying should end this year, while the other half wanted to see meaningful movement with the job market before the Fed begins tapering.  

With more uncertainty within the markets, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) closed lower, though by only 8 points, or 0.06%, while the S&P 500 and the Nasdaq both increased, by 0.02% and 0.47%, respectively. The Dow's 30 components were nearly split down the middle, with 13 moving higher and 17 falling lower. Let's look at a few of the losers and examine why they didn't perform well today.

Shares of Wal-Mart (NYSE: WMT  ) slid lower by 0.34% today, after the D.C. Council voted to approve a bill that would require the retail giant and other big-box stores to pay employees working in the District a "living wage," which means the minimum hourly wage would be set at $12.50 an hour. Wal-Mart officials had warned that if the bill passed, they would scrap a number of stores in the city. The bill singles out retailers that have more than 75,000 square feet of retail space and annual corporate revenues of at least $1 billion. Other major cities have passed higher minimum-wage requirements, but none has focused solely on the large retail chains such as this one did.  

Shares of both AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) fell by 0.59% and 0.82%, respectively, today as the No. 4 wireless service provider in the U.S., T-Mobile (NYSE: TMUS  ) announced that it will allow customers to change phones every six months. T-Mobile no longer subsidizes phones and doesn't require customers to sign long-term contracts, and the new upgrade plan is another attempt to draw in more customers and fight for market share. Participating T-Mobile customers will pay a $10 monthly insurance fee, their monthly service fee, and up to $20 a month until the phone is paid off, in addition to a down payment when they get a new phone. But after six months, they can upgrade with incurring any extra fees, unlike AT&T and Verizon, where customers must pay an early-termination fee if they upgrade before their two-year contract is up. This move, like all of T-Mobile's as of late, have been aimed at growing its customer base by offering more freedom.  

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  • Report this Comment On July 10, 2013, at 10:05 PM, Abe121 wrote:

    The question that I have is which variable is more important for the Federal Reserve, unemployment or inflation rate? Unemployment is a domestic variable, while inflation rate is a Global variable. If the Federal reserve continues on its current policy of expanding the monetary supply of the United States, it would at some point in the future trigger higher inflation than anticipated. Also, since the ratio of the US economy in relation to the Global economy is shrinking, the Federal Reserve might find in worst of scenarios whereby both variables would coupling and moving in sync; i.e. high unemployment and high inflation. There are multiple reasons why inflation is still low. One important variable is the slowing of the Global economy thus decreasing demand for commodities, and of course, the high unemployment rate in the US. Deflation is of course bad because it signals many people defaulting on their debts, but it should be taken are part of the economic equation in time of slow growth of the GDP. Trying to avoid it at all cost would lead to situations which are much more dramatic in the long run. I hope the FOMC puts America future ahead of short term gains of big businesses!

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