The FOMC voted 11-1 to embark on QE4 in 2013 when OT expires. This was very much as expected and the Fed’s balance sheet, which is below the record high earlier in the year (as more securities expired than they’ve purchased), will resume its ascent. Also of important note, the Fed took away its 2015 low rate time frame and replaced it with this: “the current exceptionally low range for the fed funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than half % pt above the Committee’s 2% longer run goal, and longer term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date based guidance.” The first criteria is objective in that we will see the monthly unemployment rate but what happens if we get there with a continued shrinking in the labor force? The 2nd two are more subjective in that it relies on Fed forecasts. Remember, he PCE inflation deflator was above their .5 % above the 2% target for 7 mo’s in a row in 2011. CPI was above 3% for 9 mo’s in a row. Bottom line, the Fed continues to think that without them, “economic growth might not be strong enough to generate sustained improvement in labor market conditions.” Central planners always think that but it’s also why they’ll remain so easy for so long. With a 0-.25% fed funds rate and a 2T increase in the size of their balance sheet over the years, GDP, after falling 3.1% in ’09, grew 2.4% in ’10, 1.8% in ’11 and will likely be less than 2% again in ’12. Thus, this is the best we’ve gotten with this grand experiment and also face the prospect of a likely very uncomfortable eventual unwind of policy to look forward to. The book is far from finished on the Greenspan/Bernanke Fed. In the meantime, markets will continue the dance of slow economic/earnings growth on one hand and massive central bank money printing on the other.

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