Printing, spending, borrowing, inflating, our path to health?

The FOMC said they are “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,” aka, we’ll print more money if we have to. This wording was not specifically included in the Aug statement and this would go past the current plan to reinvest the maturing MBS proceeds into Treasuries. The commentary on the economy was similar to the lowered guidance given in the Aug statement and they continue to remain very sanguine on inflation and give zero reference to the recent rise in commodity prices. Bottom line, printing, spending, encouraging borrowing and inflating our way out of our current highly indebted condition remains official US policy, however unfortunate. The US$ is at the lows of the day and gold kissed its record high again in response.

Now that the FOMC has laid the groundwork for another round of monetary activism (it certainly hasn’t been stimulus), the question is what will be the trigger that will get them to act. Will it be a continuation of a lackluster economy that while not getting any worse statistically is not getting any better or will they wait and save the ammo for when the economy takes another leg lower? With respect to stock prices, on one hand we should be alarmed that the Fed thinks they need to do more after everything they’ve already done but on the other, printing money lifts asset prices. The S&P’s are up but so is gold.

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