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FOMC Meeting: Fed Stays the Course

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FOMC Meeting: Fed Stays the Course

As expected, this week's FOMC meeting was uneventful with no policy changes. The FOMC statement was very close to the September statement. The Fed's bond buying (i.e. QE3) and its forward-rate guidance (i.e. rates near zero until mid-2015) remain the same. There were only two minor changes in the language describing the economy. First, the Fed acknowledged some improvements in household spending. In September:

Household spending has continued to advance, but growth in business fixed investment appears to have slowed.

This sentence has changed to the following:

Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed.

The second change was in the description of short-term inflation. In September:

Inflation has been subdued, although the prices of some key commodities have increased recently

This sentence has changed to the following:

Inflation recently picked up somewhat, reflecting higher energy prices.

But for both cases, the Fed remains unconcerned about long-term inflation. The Fed still says that "longer-term inflation expectations have remained stable."

It's going to take a lot more improvements in the economy and/or much higher inflation before the Fed starts to think about raising rates. In fact, even when we see big changes, it may take awhile for the Fed to tighten if the Fed is serious about the following language in its statement:

the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.

I just hope that it will be a stronger economy and not rising inflation that causes the Fed to tighten its monetary policy.

Only Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, voted against the policy. Lacker has been the lone dissenter at every FOMC meeting this year. According to the FOMC statement, Lacker "opposed additional asset purchases and disagreed with the description of the time period over which a highly accommodative stance of monetary policy will remain appropriate and exceptionally low levels for the federal funds rate are likely to be warranted."

The last FOMC meeting of 2012 is scheduled for December 11-12.

Will Bernanke Remain Fed Chairman in 2014?

Reuters has reported that Bernanke may turn down a third term as Fed Chairman when his term ends on January 2014 even if the President wants him to stay. Romney had stated that if he wins, he would ask Bernanke to step down even before 2014. However, Fed watchers believe Bernanke will insist on fulfilling his term. This MarketWatch article mentions some Fed chairman scenarios in 2014 for both a Obama and a Romney administration. According to the article:

If Obama is re-elected, experts said that Fed Vice Chairman Janet Yellen would be a leading candidate to replace Bernanke.

Yellen is seen as more of an inflation dove than Bernanke. So it may take even longer for us to see Fed rate hikes.

The article mentioned a few possible candidates from a Romney administration. According to the article:

Analysts said any Romney appointee would be more hawkish.

There has even been speculation that former Kansas City Fed president Tom Hoenig may be on Romney's list. Hoenig became a famous inflation hawk in 2010 when he dissented against the Fed's zero-interest rate policy at every FOMC meeting.



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Comments
7 Comments.
Comment #1 by Anonymous posted on
Anonymous
Aaaaa, Bernanke again and again ruining our lives with no interest on our savings.
If the present administrations stays in after November 6th, don’t expect any rates increases for a decade or more, why, because we will be over $20 trillions in debt and if the rates go up even 1%, this country will not survive and the dollar will collapse, so your savings will have no meanings or value.
Bernanke threatening to leave after 2014 is meaningless again, because the FED will have created so much funny money,that even Bernanke will not like to work for the funny money as salary paid to him. What he is doing now with his money,  he is buying foreign currencies and pretending he is not concerned about threshing the dollar.
So there you have it, one man ruined a great country for sake of accommodative political policies of a President who cares even less if this republic will exists after he leave his post or not.

9
Comment #2 by Anonymous posted on
Anonymous
If you believe that buying "foreign currencies" is what Bernanke is wisely doing for himself, then why don't you do the same for yourself? A more likely scenario is that you, like many people here, just like to endlessly complain instead of taking some responsibility & doing something to better your returns...........whether it's with currencies, stocks, gold or toilet paper, for that matter. Do something!

8
Comment #3 by Anonymous posted on
Anonymous
Listen to a interview with Thomas Hoenig on NPR Planet Money podcast

#287: Fed Behaving Dangerously

July 2011

3
Comment #5 by Anonymous posted on
Anonymous
Many believe Thomas Hoenig would be Bernacke's replacement if Romney wins.

3
Comment #6 by Anonymous posted on
Anonymous
To Anonymous - #2, I did something and betted against the dollar and is paying handsomely for me.

Bernanke admitted that he was diversifying away from the dollar 2 years ago in a speech in Washington DC.

Gold is not the answer, it is a trap for huge losses, stocks are overpriced, CDs are worthless (paying less than the inflation).

1
Comment #7 by Anonymous posted on
Anonymous
#6.........I stand corrected. Conrats on your success.

1