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FOMC Statement & Fed News Conference Point to the Same Old Monetary Policy

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FOMC Statement & Fed News Conference Point to the Same Old Monetary Policy

The third regularly scheduled FOMC meeting of 2011 ended this afternoon, and for first time, the Federal Reserve held a news conference with Bernanke answering questions from reporters. There remains no signs of future rate hikes. Both in the FOMC statement and in Bernanke's responses to the reporters, there is little concern about the current inflation being a long term issue. According to the FOMC statement:

Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory

The first step on the road to higher rates will be when the Fed ends the purchasing of the Treasury securities (QE2) at the end of June. The Fed continues to stick to that plan, and that appears to be appeasing the inflation hawks on the Committee since all voted in favor of today's monetary action. If there's a move toward QE3, we may see some dissenting votes. However, the inflation hawks are in the minority.

The next step on the road to higher rates will be for the Fed to stop the reinvesting principal payments from its securities holdings. Bernanke mentioned in the news conference that he considered such a move to be the start of the tightening process. There was no clues about when this would occur. The third step will be the changing of the "extended period" language for holding the Fed funds rate at exceptionally low levels. A reporter did ask Bernanke about how he would define an extended period, and Bernanke said that it would take "a couple of meetings" before any interest rate action is taken.

Bernanke mentioned several times in the news conference that both the unemployment and inflation are driving their decisions. As long as the unemployment rate remains high and core inflation remains stable, we probably won't see any moves toward rate hikes.

The Fed also released its economic projections (pdf) which forecasts GDP, inflation and unemployment through 2013. Compared to their January forecasts, inflation rates went up slightly and unemployment rates went down slightly. These are moving in the right direction for a better economy and for rate hikes. However, the GDP projections went down a little. Even with these forecast changes, the unemployment rate is still projected to be at least 6.8% in the fourth quarter of 2013, and the inflation rate is expected to be no higher than 2.0%. So unless the economy improves a lot faster or unless core inflation becomes a lot worse, it could still be a long time before we see much tightening at the Fed.

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. 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 December is 25.9%. That's down from 28.7% after the last meeting. It looks like we'll have to wait to 2012 at the earliest for a rate hike. According to the futures market, the chance of a rate hike by next March is 55.0%. That's down from 61.2% after the last meeting. And the chance of a rate hike by next April is 72.8%.

The next two FOMC meetings are scheduled for June 21-22 and August 9.



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Comments
12 Comments.
Comment #1 by Anonymous posted on
Anonymous
Until we get a changing of the guard at the Federal Reserve Board, I don't expect anything different in the FOMC statements.  Still in denial about inflation!

7
Comment #2 by Anonymous posted on
Anonymous
The "accepted" inflation rate appears to work inversely with the unemployment rate.  When one of them goes goes down, the other goes up and vice versa.

2
Comment #3 by Anonymous posted on
Anonymous
Unemployment rate?  Most of the manufacturing jobs that have disappeared during this severe recession are not coming back.  They have left the country.  Stagflation?

I sure hope not.  But the future doesn't look good for the average worker.

4
Comment #5 by Hank2 (anonymous) posted on
Hank2
Bernanke dual mandate has turned into:

Help wall street  and **** the savers, mandate done, simple and easy and as a bonus  for Obama’s export idea to make US goods cheap, he destroyed the dollar.

 

15
Comment #6 by Bozo posted on
Bozo
I gave up long ago trying to figure out the Fed. Now, I just bet against them, like Pimco. Rather than investing in bond funds, I bet against them. When rates rise, the value of bond funds goes down. So, you take the inverse. I use DLBS. It's an exchange-traded note. Not heavily traded (it's not for day-trading), but it's a pretty fair inverse bet on long-term interest rates. If you think interest rates will rise, but CD rates will lag, then plop a bit of money into DLBS. It's our little secret (few folks know about this exchange-traded note).

Bozo

4
Comment #7 by Shorebreak posted on
Shorebreak
I still don't expect any change in policy until after the 2012 presidential election, if then. The post Fed meeting minutes early next year will probably read "the current low rates will continue for the time being" instead of "for an extended period". Bernanke does not want to disturb the cozy relationship that he, Geithner and Obama have with Wall Street. I'd sure like to know the definition of "transitory" that Bernanke uses. Does he a men a few months or a few years?

5
Comment #8 by Anonymous posted on
Anonymous
Bernanke gave us the old hocus-pocus, nothing new, teasing around the edges but nothing concrete to sey about anything,
Later one, he will say, “I did not mean it that way, you miss interpreted  it wrong way”, typical hypocritical bureaucrat.
Since when one persons holds so much unchecked power, singlehandedly he can destroy all of us.  Criticizing him is pointless, just do way with the FEDs it is the best thing that can happen to this country, until then, we are all sub-servient minions  and worthless criticizers.

12
Comment #9 by Vigilante (anonymous) posted on
Vigilante
Guys, we are in the midst of a major change in the precious metals markets, where the manipulation by larger international casino-bankers is being ended.  The PMs are going to soar over the next few years, just as silver has already soared, but MUCH higher than that.  The corrupt fools at those TBTF banks have been selling silver and "storing" most of it, on behalf of suckers who let them do it, to the tune of tens of thousands of tons of silver and thousands of tons of gold and platinum.

While the Federal Reserve destroys the value of the dollar, it is foolish to put any significant portion of your assets into long term CDs, bonds, annuities or any other long fixed income investment.  On top of that, the stock market is going to crash because Bonkers Benanke has induced "cost push" inflation, which may either end in severe stagflation or hyperinflation.  Either one, and the value of your money in 3% paying CDs or bonds is going to be wiped out.  Companies are paying higher and higher input prices, and are going to be constrained from raising prices because of cash-strapped consumers, so this quarter is likely to be the last in which profits improve, as the law of diminishing returns on monetary counterfeiting kicks in.

The casino-banks, using their Trojan horses like Timothy Geithner, Hank Paulson, and Ben Bernanke, have already robbed us blind, and are intent on transferring the value of your wealth to themselves, as the United States is plunged into second-rate country status.  The only way to protect yourself is to buy something that has the characteristics of money, but which the thieves cannot print.  That means gold, silver or platinum.  Forget about bank accounts, except for keeping enough cash on hand in short-term money market accounts so you can move in and out of the precious metals markets, and/or to pay your monthly bills.

3
Comment #10 by Anonymous posted on
Anonymous
No worry....AARP is on our side so just sit back and watch them fight for us. They have some great deals on car rentals, insurance, etc, er, ah, hmm, I digress....actually, AARP is totally worthless as an aid or advocate for the conservative retired investor and I will not give them one cent for their constant mailing for membership dues. 

5
Comment #11 by Vigilante (anonymous) posted on
Vigilante
I should also say that, in the long term future, there may be a time for bank CDs again, but it won't be until Bernanke is removed and a new Chairman like Paul Volcker is installed or, in the alternative, when the Federal Reserve messes up the economy so badly that the Congress closes it down.  When either event occurs, rates will soar to where they should be, which is above the rate of inflation.  Right now, subtracting out government gimmicks designed to understate the inflation rate, real inflation is already running at about 8% per annum.  (See, www.shadowstats.com).  Right now, however, and for the next few years, precious metals are the place to be. 

I have no doubt that the business media will be telling us that "value" of the dollar, in terms of Euros and British pounds, which together are about 85% of the so-called "U.S. dollar index", has increased dramatically when Federal Reserve counterfeiting operations (a/k/a QE-2) ends on June 30th.  However, that will be false.  It will be yet another episode of our nation's Orwellian Ministry of Truth (a/k/a New York Federal Reserve Branch) inserting lies into the media.  The dollar, Euro and British pound all have no where to go but way down in terms of buying power, as opposed to in terms of each other (which the Ministry of Truth wants you to concentrate on).

Remember, one British pound sterling, in the year 1620, when New Amsterdam was renamed "New York" was defined as one pound of sterling silver. Banknotes could be exchanged for that amount of silver at any issuing bank.  Consider that 16 ounces of silver is now worth about $748, and the fact that one current incarnation of a "British pound" is irredeemable, and is worth only $1.63! The difference is currency debasement (a/k/a inflation).  Governments do it to transfer your wealth to persons connected to the government, either with bloated civil servant salaries, welfare checks to buy happiness among their political supporters, to fund various wars to support various commercial interests connected to governments, capricious military interventions, corrupt payoff schemes and the like.

2
Comment #13 by Anonymous posted on
Anonymous
#11 - and your conclusion is what? After that diatribe of trivia, surely you have a point(s)?

5
Comment #12 by Mike (anonymous) posted on
Mike
IMHO, the precious metals are just another bubble, soon to pop. I think it's going to end bad, just like it did some 30 years ago.

5