The Fed speaks

The FOMC acknowledged the recent weakness in the economy but they believe the factors causing it “are likely to be temporary” as they think inflationary pressures will recede and the supply chain disruptions from Japan dissipate. On inflation, they again mention the influence of higher commodity prices and specifically did not say “measures of underlying inflation are still subdued” that they included in the April statement likely because the last CPI reading is no longer subdued. They hope though it is still ‘transitory.’ Unlike in past statements, the Fed is making a call that they expect “the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate.” While they think the economy will get better, they also inconsistently think “inflation will subside to levels at or below those consistent” with their dual mandate. I say inconsistently because Bernanke has cited greater demand as raising commodity prices, thus a better 2nd half recovery should not lead to lower inflation. They said MP2 (money printing) will end at month end but they will maintain the size of their balance sheet. Bottom line, I understand the huge focus on Fed action from here on but they have lost the ability to help the economy because a lower cost of money has proven impotent in helping an economy that is delevering. Asset prices and our currency is the only thing left for them to manipulate.

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:

Posted Under

Uncategorized