It is irresponsible for the Fed to state that it will keep rates exceptionally low through at least late 2014. No one, least of all the misguided seers at the Fed, knows what inflation, the economy, the dollar, etc. will be in coming quarters, let alone two years.
Please recall that we mockingly said that the Fed would in the future announce that it would keep rates exceptionally low through 2014, then through 2015, then through infinity.
The reason for the ‘late 2014’ verbiage is the Fed wanted to throw a bone to The Street because it did not announce the much-desired QE 3.0.
Stocks and commodities rallied on the ‘late 2014’ clause because the usual suspects, as they have for the past two years, spin every FOMC Communiqué as an indication of imminent QE 3.0 implementation.
The Fed stating that it will keep interest rates exceptionally low through 2014 is a symbolic act, like Warren Buffett stating that he would like to pay more taxes. The Fed, like most of the known world, has downgraded its economic assessment for 2012.
Information received since the Federal Open Market Committee met in November December suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to be increasing less rapidly has slowed, and the housing sector remains depressed. Inflation has moderated since earlier in the year been subdued in recent months, and longer-term inflation expectations have remained stable…
The Committee continues to expect a moderate pace of expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.
Does anyone with a modicum of sense believe that the risible ‘late 2014’ assertion will compel business executives to suddenly go into economic expansion mode? PUHLEASE!
The Fed unwittingly has demonstrated its effeteness. In the face of a slowing global economy all the Fed can do is provide a symbolic pledge and maintain ‘financial repression’ for three more years.
Bonds soared on the Fed’s economic downgrade and absence of QE 3.0 implementation or pledge.
If the economy is stumbling with exceptionally low [record] rates for the past two years, why should the economy improve if policy remains the same, no matter how long it is extended into the future?
Insanity is doing the same thing over and over again, but expecting different results. – Albert Einstein
One thing that the Fed did accomplish with its dovish rhetoric is it supercharged commodity prices. Gasoline prices, which are extremely politically sensitive, are at an all-time January high. When traders and commercials pour into gasoline for the drive season, gasoline could reach new all-time highs.
Just like in 2011, commodity inflation early in the year, due to the Fed’s insane policies, crushed the economy and fomented civil unrest globally.
What did Einstein quip about ‘insanity’?
If one trusts the Fed, then one must believe that the Fed sees, at the best, no economic improvement until late 2014 and/or a financial system that remains on the brink due to big zombie banks. There is no other reasonable explanation to project ZIRP or NZIRP for almost three more years.
Fed doves keep pontificating about ‘inflation targeting’ because fraudulent inflation accounting provides them with a rationalization to keep creating credit. Easy Al and Ben utilized this scam.
Fed doves for the past few quarters have used unemployment as in pertains to the Fed’s dual mandate as an excuse for QE. Why doesn’t the Fed provide a target employment rate like it has for inflation? Because the Fed knows that the US’s unemployment problem is structural. This means most, if not all of the Fed knows that it has little control over unemployment.
The FOMC Minutes: The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market… [Why scapegoat employment, B-Dud?] MoJo) http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm
After the disastrous results of QE 2.0 and Ben’s subsequent admission that QE was no longer devoid of malicious affects, we surmised that the Fed would save QE 3.0 for a big bank or systemic failure; but it would utilize verbal intervention. This has transpired. The incessant braying by various officials that Fed monetization of some asset is warranted now or ‘if needed’ is the major prop under the economy and markets. This keeps assets from deflating and the dreaded debt deflation at bay.
We believe that Ben realizes that he can keep the game going via verbal intervention; so there is no need to implement QE 3.0 until a crisis appears.
We also believe the Fed’s perception that it must rely on verbal intervention to keep the game going is the reason for the Fed’s new found desire to convey its forecasts and intentions to the public.
We opined that the Fed is becoming more public because it is disappointed that the markets are not behaving like Fed officials and their models desire.
Ben von Havenstein Bernanke issued a notable disclaimer in his press conference yesterday when he admitted that Fed interest rate forecasts are NOT unconditional pledges; they’re ‘projections’.
Then why did the Fed make the risible ‘through late 2014’ pledge, Ben? We know, to keep the new economy, which is rank financial speculation, going, of course.
Ben on the Fed’s forecasting veracity, when reporters noted its repeated errors: “Our ability to forecast three and four years out is obviously very limited,”…
Ben said expanding the Fed’s balance sheet is an option and there will be no asset sales until at least 2015.
The Fed has refuted President Obama and Little Timmy’s claims that the US economy is strengthening.
Ben issued other blatant lies, courtesy of WSJ: “At levels of inflation this low, interest rates should fully compensate for the losses to savers.” Bernanke reiterates that the Fed is not unaware of the problems that low interest rates cause to savers and pension funds, he says. http://blogs.wsj.com/economics/2012/01/25/live-blog-bernanke-press-conference/?mod=wsj_share_twitter
Bernanke said the Fed eschews the CPI as an inflation gauge. It uses the Commerce Dept’s PCE. The reason is elementary, my dear Watson. CPI (3.2%) is well above the Fed’s 2% inflation target. PCE is 1.7%. A more accurate gauge of inflation – using pre-1980 methodology – shows inflation is over 10%
Ben von Havenstein Bernanke employs inflation metric shopping in order to justify his monetary abuse.
Even the most Fed-apologetic pundits agree that the Fed is trying to reflate because it’s the only remedy. Wednesday’s action and verbiage strongly confirms our view that Fed monetization is the sole prop. The market ignores Europe, Iran, earnings and global recession on the hope that the prop trumps all. But as 2011 demonstrated, events and news can usurp confidence in the prop at any moment.
We have incessantly noted that stocks tend to rally into FOMC meetings on hope of QE or dovish braying and then reverse soon thereafter.
Even when the Fed has disappointed the market by not implementing QE, the usual suspects have spun Fed verbiage as a guarantee of imminent QE. This occurred repeatedly last year.
Furthermore, even after Ben von Havenstein Bernanke on April 27 explicitly stated that QE no longer was bereft of ugly consequences stocks and commodities rallied for four days. Then they reversed harshly.
The King Report
M. Ramsey King Securities, Inc.
Thursday January 26, 2012 – Issue 4184 “Independent View of the News”