As the FOMC begins their two day meeting today not only will they have to juggle the current stabilization in the US economy with their extremely accommodative policies, I wonder whether they will discuss the US$ and the price of gold as price stability (stable currency) is one of their two mandates. The $ index is falling to a fresh 13 month low today and gold is just shy of a new high. Based on the stock market action in response, we are depreciating our way to prosperity and the reflation trade is the best defense. Since Bernanke took office on Feb 1st 2006, the $ index is down 15% and gold is up 79%. With the Fed mostly focused on the temporary changes in prices as measured by the CPI and PCE deflator and also the output gap, it’s likely they won’t express much concern as from that perspective, prices still remain subdued. The Asian Development Bank increased its Asian region economic growth estimate for ’09.
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