Bernanke's Folly - High Oil Prices Are Fleeting, QE To Remain
Headlines from Fed announcement:
- FED RAISES ESTIMATES FOR 2011 CORE INFLATION TO 1.3%-1.6%, WAS 1.0%-1.3% BEFORE
- FED REDUCES GROWTH OUTLOOK FOR 2011, SEES TRANSITORY INFLATION
- FED POLICY MAKERS SEE 3.1% TO 3.3% ECONOMIC GROWTH FOR 2011, WAS 3.4%-3.9% BEFORE
- FED FORECASTS HEADLINE INFLATION OF 2.1% TO 2.8% THIS YEAR
- FED WILL CONTINUE EXPANDING BALANCE SHEET
From the actual release with our commentary:
"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability."
Well, in terms of fostering maximum employment we are an extremely long way from maximum employment considering that the employment to population ratio is running at levels not seen since 1984. However, the real bold faced lie came in the second part of the paragraph that stated the inflation pressures as seen in oil and gas are simply transitory. This is almost laughable since there is a direct relationship between higher commodity prices and Fed Reserve intervention into the markets.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and will complete purchases of $600 billion of longer-term Treasury securities by the end of the \current quarter. The Committee will regularly review the size and composition of its securities holdings in light of incoming information and is prepared to adjust those holdings as needed to best foster maximum employment and price stability."
We have already shown that the economy is not recovering in last week’s newsletter as we posted the Fed's report card. However, the real statement should have been that "We will continue expanding our balance sheet as Wall Street is still unable to scalp the American public entirely on its own. Without our support and assistance Wall Street, and primarily the banks, would be looking at bankruptcy and since they provide most of the money for campaigns and elections we need to keep them in business." Okay, I am being a little sarcastic...but not by much. The bottom line here is that QE and Permanent Open Market Operations are continuing so the Bernanke "Put" on the markets remains in place for now. In other words, with the exception of short term market declines - the markets should continue to try and push higher. However, also continue to expect and deal with higher volatility.
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period."
Low rates will continue for an extended period to ensure that Wall Street can continue to rape and pillage the middle class as we plunge our economic future further into the rat hole. While the average American cannot make ends meet and retirees are being forced out of safe assets into more and more risk to try and create a livable income stream - the demise of the American retiree is now most surely assured. In the final assessment of today's announcement the biggest threat to the great American baby boomer generation is the Federal Reserve.