FOMC Aug 9

BarroMetrics Views: FOMC Aug 9

Sorry folks, behind the 8-ball. The FOMC comment came out yesterday. There was no news conference.

  • The FED promised to keep rates at low levels to at least mid-2013.
  • No QE 3 (at least for the moment). But its comment “that it expects inflation to be “at or below those consistent with the Committee’s dual mandate”¬† seems to open the door for QE3 in future FOMC statements.

There were 3 dissenters of the statement regarding keeping low rates to mid-2013 (the FED is a 7-man committee). This raises interesting possibilities for the future.

The fact is QE 2 was a dismal failure:

  • Bank kept their deposits (QE2 funds) with the FED as shown by the FRED graph
  • Few new jobs were created and
  • Business activity failed to increase significantly.

More of the same is unlikely to produce different results. In addition, even without¬† bank lending, we are starting to see inflation rise. The problem is this: there is little else the FED can do but to lower rates and ‘print’ more money. So, we could ask this question: Given QE2, if we see QE3, is the FED changing the position of deck chairs in an effort to stop the Titanic from sinking?

There are two forecasts that can be made with little chance of being wrong:

  1. Inflation will rise (Gold tells us that)
  2. The US will suffer at least a severe double dip recession (the Stock Market tells us that)

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