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Federal Reserve Continues with Same Policies

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Federal Reserve Continues with Same Policies

The last scheduled FOMC meeting for 2010 ended today with no changes from November's meeting. Today's FOMC statement is very similar to last month's. The $600 billion in Treasury security purchases (QE2) continues without change:

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. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.

As everyone expected, the same ultra low interest rate policy continues with no end it sight:

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.

Just as he has done all through this year, Thomas Hoenig was the only one to vote against this policy:

Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

This is Thomas Hoenig's last FOMC meeting as a voting member. The presidents of the Reserve Banks serve one-year terms on a rotating basis. So next year Thomas Hoenig and three other current voting members are being replaced. This CNN article has a good review of the new voting members. According to the article:

three of the four new voting positions will go to so-called inflation hawks who have been outspoken with their criticism of the Fed's latest stimulus plan.

So we may see more votes against Bernanke's policies next year. However, that may still not result in much change since the committee has 12 members.

Future FOMC Meetings

If you want an idea about what the market thinks regarding when the Fed will start hiking rates, check out this CME Group FedWatch tool (came back sometime after Saturday). It shows the probability of rate hikes in the future FOMC meetings based on the 30-Day Fed Funds futures prices. The probability of a higher Fed funds rate by next June is shown to be 17.2%. That's up from 3.2% after last FOMC meeting in November. The chance of a rate hike by next November is 59.8% which is up from 18.6% after the last meeting.

The first and second FOMC meetings of 2011 are scheduled for January 25-26 and March 15.



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Comments
11 Comments.
Comment #1 by Fred10 (anonymous) posted on
Fred10
As long as Bernanke is the Chairman of the FEDs, his Committee members are just puppets and they will do what the big “kahuna” wants. He is so powerful because he controls the votes through manipulations and false speeches and made up numbers from inflation to hidden bail-outs, that only he knows who took the money and how much.

If anyone trust Bernanke numbers, you must as well believe in Santa Claus. He will totally destroy the Dollar and US economy, what ever is left of them.

When inflation hit the tipping point or when the bonds buyers sober up, the interest rates will shot up almost overnight and he will not be able to stop it do to the fact of built in bubbles in the commodities, bonds, treasuries , stock markets  and other still unknown  or secondary chain reactions that will  follow up.

Accommodating the banks, stock markets and bond holders will come to an end soon, therefore he invented QE2 to keep all  under muzzle and with strings attached to everything.

But, everything comes with a prize, his reign will end soon and abruptly.

9
Comment #2 by SaveYurMoney posted on
SaveYurMoney
I also wonder how this will all end. In the 1970s the prime rate of interest jumped from about 6% in 1977 to 20% by 1980. Will we go down that path again?

4
Comment #3 by Anonymous posted on
Anonymous
>>So we may see more votes against Bernanke's policies next year.<<

Nope.  There is no such thing as "Bernanke's policies". 

There are proposals by different FED members including the chairman.  When these proposals get approved by the committee, they become the "policies" of the Unites States Federal Reserve.

I guess Ken disagrees with the policies, but there is no need to make the FED policies into something personal.

8
Comment #4 by Anonymous posted on
Anonymous
Ken reports them like he sees them.  Good job Ken!

As far as making Bernanki's policies, rather the Fed's policies as some prefer, personal, when they effect me personally, and they do, then it IS a PERSONAL  matter.

1
Comment #5 by Smokeboat (anonymous) posted on
Smokeboat
My backside is still aflame from what brought US to this pickle.  Are we a country of laws, or not? RIP Milton.

1
Comment #6 by Anonymous posted on
Anonymous
From the looks of the way the rate on ten year note has risen since Bubbles Ben announced QE2, it looks like the Fed has been hoisted by its own petard. 

1
Comment #7 by ichaelm posted on
ichaelm
I would like to nominate KenBankDealsGuy to replace Thomes Hoenig.

1
Comment #8 by Anonymous posted on
Anonymous
Ken, could you censor some of these nut-job posts, as well?

Commenters here continue to have no clue how the Fed works.  Maybe you should make an honest, unbiased post on that.

12
Comment #9 by April (anonymous) posted on
April
Anonymous - #3 believes in collective thinking and not individualism and has socialistic tendencies.
Your comment is inappropriate, unless you are communist, then you are excused for your comment.

1
Comment #10 by Anonymous posted on
Anonymous
To Saveyurmoney,

I think the huge jump in interest rates was one reason why Jimmy Carter lost the 1980 election.  I think the economic landscape changed radically for the US back in 1973 with the Arab Oil Embargo.  That fundamentally changed the US lifestyle regarding energy use and produced ripple effects across all sectors of businesses and finace.

3
Comment #13 by Anonymousaints (anonymous) posted on
Anonymousaints
like you nunmber 8

1