A new fear gripped the market Friday. Originally, gross domestic product -- the broadest measure of economic activity -- was reported to have grown 2.4% in the second quarter. Now, many are expecting the Department of Commerce will revise this figure down next week. According to a Bloomberg survey, revised GDP will have lost one point to a more anemic 1.4% growth.
The expectation of the lower GDP caused an accelerated rush to buy Treasuries. On the futures market, the 30 year bond was up 15 ticks to 134-26. The Dow Jones Industrial average continued its decline, falling yet another 90 points in early morning trade.
In Europe, the euro fell to $1.2718. Credit default swaps on Spanish bonds rose 30 basis points.
The Federal Reserve is attempting to prop up the market by buying more Treasuries. Perhaps it is too soon to see an effect in the economy. It usually takes a couple of months before we see any real change. Since this financial crisis began the Fed has pumped $11.2 trillion into the economy with very little, if any, change. Unemployment is still high. On Thursday, the Labor Department reported that initial claims for unemployment rose to 500,000.
This latest move by the Fed to pump more money into the economy came unexpectedly. Could it be that it is timed to coincide with the mid-term elections?