The Fed’s Open Market Committee meeting is over and they announced that they would do—nothing.
I humbly admit that my guess that they would announce QE3 was dead wrong. Alas. The (other) pundits (most of them) were correct. Occasionally it’s good to be humbled.
Their oracular statement was:
The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
They voted almost unanimously for this conclusion. [Inflation hawk] Jeffrey Lacker withheld his vote, “who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate [2014].”
Their statement could be interpreted as being somewhat stronger than last month’s release. Here is a redlined version showing the differences between the two statements (subscription required).
I will still stick by my belief that they will do QE3 at some point, seeing that in a declining economy that is the only policy option (as they see it) they have. Of course that’s is the wrong thing to do. None of these things have worked and they wonder why the economy is faltering.
Yeah they’re seeming to wise up and come around, realizing the economy is not their personal ATM to adjust/stimulate at their convenience. I actually thought they wouldn’t do anything, instead relying on just on hints at QE rather than a new easing program every quarter, since that satisfies the market more than any action. im sure they’re onto by now. Like I said before, interest rates are at all time lows and that seems to be the only effect of the easing programs thus far. Its good to see the Fed waking up, but Ill be satisfied when they start helping ME(consumers) more than the banks.
First of all, I have been enlightened by Austrian Economic Theories, so I abhor the idea of central bank money printing.
That said, I believe the FED is attempting to appear a-political by waiting and does not want to be seen as helping the current administration prior to election by goosing the economy with more QE.
So if the FED waits the until after the election to ‘help’ the newly elected president whoever that may be, the ‘help’ is seen as being given to the new administration, as opposed to the previous administration.
Also, whoever is the new president will be looking at a big economic mess and will want to have the ‘continuity’ of existing FED Chairman who has been diligently following the problem.
This is hogwash to anyone who knows the real story, which is that the FED is prolonging the problem by preventing liquidation and reallocation of capital of failed investments. But for the Keynesian indoctrinated masses who want the government to ‘do something’… QE is just type of crackpot ‘blood letting’ cure-all which will usher in an era of prosperity… never mind that it has never worked, and is in fact harmful!
Regards to all,
I.M.S.
You could be right. Others have speculated on this. We can all hope that Ben gets fired before he can do more harm.
I was also pondering that FED QE rounds are best done in large bursts (from the point of view of the FED). This prevents many folks from speculating on commodities or risk-on trades. And the associated backlash of debauching the currency for savers. I am fairly certain there will be some form of printing eventually (say within 6 months) because nobody in their right mind would buy treasuries at near zero interest and the US economy shrinking. Good luck on getting the govt to cut spending. The only other option is the FED will have to step in to purchase treasuries (thus monetizing the debt).
Yep. Throw the bum out! Only who will be put in his place, and will he/she be worse?
I’m in the process of changing my name to I.M.Cynical.
Enjoy the rest of your evening.
IMS