A lot of nonsense has been written and spoken about Fed Chairman Bernanke’s recent so-called “dovish” testimony to Congress probably indicating that the Fed would skip an interest rate increase on 8/8/06. (What he actually said was not so clear, in my opinion.) So, such a pause in the Fed’s campaign to raise interest rates is probably already discounted.
Therefore, it seems possible that if the Fed actually does pause, the markets might initially rally for a minute or so before selling off.
But if the Fed raises interest rates again, the markets might really fall.
Most likely, the Fed’s accompanying policy directive could be so cryptic and contradictory as to cause wicked whipsaws in both directions. That happens with remarkable frequency around such completely artificial “events” manufactured and served by your helpful and friendly unelected Monetary Authority.
Billions are made and lost. Ever ask yourself, what is the purpose of such an event, and who benefits from it?