Market Talk

Stocks continue their upward march as a weaker US dollar ahead of this afternoon’s FOMC statement contributes to the gains.

The Fed’s expected to keep interest rates near zero, as it wants no part of undermining this extremely fragile economic recovery.

Keep in mind, though, that trading in stocks tends to be extremely volatile on FOMC days. And while the market’s showing signs of optimism now, there’s no guarantee the same exuberance will exist when the market closes.

“They’re buying the rumor,” Barron’s Bob O’Brien writes. “Let’s see if they’re going to end up selling the news.”

Trading was extremely volatile during the last Fed day on Sept. 23. On that day, stocks were relatively flat for much of the session, then shot higher after the Fed’s statement was released, only to plunge in the final hour of trading.  The Dow had about a 150-point intraday swing from when the FOMC statement was released until the market closed.

Currently, the Dow, which has been up triple-digits for much of the day, was recently up 118 at 9990 and gained as much as 146 earlier in the session. Are stocks setting up to duplicate the action seen on the previous Fed day?

It remains to be seen, but Fed chief Ben Bernanke finds himself in a difficult situation. He faces a tough decision in deciding the appropriate time to say no to “extraordinarily easy money” and boost interest rates, says Miller Tabak equity strategist Peter Boockvar.

“Ben’s in a n0-win situation for now,” he notes. “The risk trade dynamics change for the worse if he signals that rates won’t stay ‘exceptionally low’ for an extended period.’ ”

Of course inflation risks heighten the longer interest rates remain near zero.

But “the Fed put themselves in this box by cutting rates to almost zero and fingers crossed on where we go from here,” Boockvar says.