Oh to be a fly on the wall over the next two days listening to the FOMC discuss the current state of the economy, their programs in place to help jump start it and what their game plan is looking forward. But, whatever comes out of it tomorrow, keep one thing in mind. The Fed will not stop until the economy starts growing again and will thus, in my opinion, continue to be a big support for hard assets, notwithstanding the multi day pullback that shook the tree of an over crowded trade. Milton Friedman’s belief that inflation is a monetary phenomenon is currently being put to the ultimate test by a Fed Chairman that seems to think otherwise and believes the ‘output gap’ is the key inflation influence, rather than the stability of the US$ or lack thereof and commodity prices. Today’s WSJ editorial section highlights the debate. The fed funds futures are pricing in a 10% chance of a 25 bps hike by Sept. May Existing Home Sales are key today. The Treasury comes to market with a 2 year note auction. July German Consumer Confidence rose for a 2nd month and was higher than expected. Euro region services and mfr’g composite index was a touch less than expected but did rise to the highest level since Sept ’08.
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