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FOMC Statement and Inflation News

POSTED ON BY

As expected, the Fed announced no policy changes at its FOMC meeting yesterday. This is essentially more of the same for savers. We’ll have to continue to wait for just the early start of a long tightening process that will eventually lead to higher deposit rates. The following excerpt from yesterday’s FOMC statement is very similar to what was said in the previous meeting and sums up the situation:

Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.

Many are now thinking we won’t see the start of tapering until well into 2014. This CNNMoney article provides some insights into when it may occur:

Add in the Fed's leadership transition, as Bernanke's term ends in January, and Fed watchers largely think the central bank has to wait until at least its March 2014 meeting, before making any major policy changes.

"I don't think Federal Reserve Board members would feel very comfortable about beginning the tapering process until we're closer to 200,000 jobs added each month. We're a long way from there -- in fact we're moving in the wrong direction," said Mark Zandi, chief economist for Moody's Analytics.

And just like previous meetings, there was just one vote against the action.

Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

Inflation and I Bonds

Esther L. George isn’t the only economist worried about future inflation. Alan Greenspan, the former Federal Reserve chairman, has described why he’s worried.

So far inflation hasn’t been a problem, at least based on CPI and other government-based measurements. That continued yesterday when the government released its September CPI report (delayed due to the government shutdown). As reported by the LA Times:

The monthly gain in overall consumer prices was in line with analysts' expectations and came because of a rebound in gas prices. But stripping out the volatile energy and food components, the so-called core consumer price index ticked up just 0.1% for the second straight month. And on a 12-month basis, this reading of core inflation was up 1.7%, down from 1.8% in August.

By this measure, inflation remains well below the Fed's 2% target and 2.5% threshold for tightening policy, allowing officials to maintain a stronger focus on lowering unemployment than its other mandate of controlling prices.

Yesterday’s September CPI release also allows for the calculation of the next Series I Savings Bond inflation component. Jonathan at MyMoneyBlog has already done this, and he has calculated that the I Bond inflation component will be 1.18%.

Future FOMC Meetings

The next two FOMC meetings are scheduled for December 17-18, 2013 and January 28-29, 2014. The December meeting will include the summary of economic projections and a press conference by Chairman Bernanke. If confirmed by the Senate, Janet Yellen will become the new Fed Chairperson on February 1, 2014.



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Comments
13 comments.
Comment #1 by me1004 posted on
me1004
Something the Fed members fail to see: They are strrangling the economy by fleecing savers. Continuing to maintain the lowest-ever interest rates that were put in place in the face of a major worldwide economic collapse is long since no longer justified or good for the economy -- we and the world are no longer at crisis levels. 

Those low interest rates are killing savers, who of course accordingly will not be spending and thus not helping to boost the economy. 

They have interest rates at about zero. They could punch rates up to 2-3% with no impact on borrowing by businesses. When you go below that level, there really is no impact on borrowing as if your situation was so poor that you were not willing to borrow at that kind of very low rate, lower rates will not make the difference, rates are not where the problem is for borrowing. 

For now, the problem businesses are facing about borrowing and expanding is that they don't have enough sales to justify such expansion -- yet the Fed is strangling all the savers so that they can't get out and boost that buying. So, the Fed's action to keep interest rates at crisis levels even without a crisis is serving only to undermine the recovery -- and yes, seriously temp inflation, which if and WHEN it gets started, will be hell to knock down. The Fed is acting like an unthinking machine with an incomplete program in it. Waiting until the last second to start such an incredibly long climb to normal interest rate levels promises major blows to the economy when inflation  gets going and quickly runs out of hand, as they will either have to make big jumps in interest rates suddenly, which will be a big blow to the economy, or they will do too little and risk hyperinflation that will kill everything gained so far and bring on the depression we so narrowly avoided.

Rates are at far too low a level to be wating until the last second  to do anything about them, as the Fed  is doing.

23
Comment #2 by Anonymous posted on
Anonymous
As long as the goernment runs deficits, there will be no tapering. Somebody has to feed the monster with fresh money. One trillions are needed just to pay for the lazies on welfare and one trillion to SS and medicare and one trillion for pentagon and the other pork bellies and one trillion for government workes, benefits and the interest on the debt.

We are short one trillion per year, you do the math what will happen if the FED is not printing.

16
Comment #3 by Shorebreak posted on
Shorebreak
Re: Anonymous - #2, Thursday, October 31, 2013 - 12:11 PM
"One trillions are needed just to pay for the lazies on welfare and one trillion to SS and medicare and one trillion for pentagon and the other pork bellies and one trillion for government workes, benefits and the interest on the debt."

Do you know the difference between debt and deficit?

For the first time in five years, the U.S. government has run a budget deficit below $1 trillion.

The government says the deficit for the 2013 budget year totaled $680.3 billion, down from $1.09 trillion in 2012. That’s the smallest imbalance since 2008, when the government ran a $458.6 billion deficit.

The deficit is the gap between the government’s tax revenue and its spending. It narrowed for the budget year that ended on Sept. 30 because revenue rose while spending fell.

http://swampland.time.com/2013/10/30/u-s-budget-deficit-down-to-680b-lowest-in-5-years/

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Comment #4 by Anonymous posted on
Anonymous
BRAVO post #3 (Shorebreak) !!!

6
Comment #5 by Anonymous posted on
Anonymous
Just want to add that in my personal situation as a retiree saver, I have spent much less than in prior years when interest rates were more "normal". I have also seen the holding back with many others. But it doesn't stop there. I see myself and others giving less to children, grandchildren, friends, charities, etc, so you have a generational ripple effect. So to me it's a no-brainer: choke off savers and you have slower economic growth. I guess when you have Ph.D's and experts not only setting policy but concocting get-rich derivatives schemes and the like they miss that 2 2 = 4. I have several degrees myself, but not smart enough to go into economics!

11
Comment #6 by paoli2 posted on
paoli2
#5  I think our Economic  brains are also not smart enough to be in economics.  The one thing they are missing is common sense!  They want people to spend and they snuff out a huge number of people who would like to "spend".  That really takes brains!

6
Comment #7 by QED posted on
QED
The Federal Reserve is merely an instrumentality of the Government of the United States of America.  As such it is reflecting, supporting, and facilitating the prevailing trend seen everywhere in our government today, as we move inexorably from Republic to democracy.  This movement is contrary to the will, and to the intent, of our founding fathers;  but nobody cares. 

For anyone unclear on this, here is a reference:

http://www.lexrex.com/enlightened/AmericanIdeal/aspects/demrep.html

[Sorry if you have to copy and paste that link into your browser.  The link function here appears not to be working, at least not in preview.]

4
Comment #8 by lou posted on
lou
I agree with Shorebreak that the current deficit narrowed this year, but that can attributed to special circumstances which may not be ongoing. For instance, the govt had a windfall in revenue because many poeple accelerated income and deferred deductions at the beginning of this fiscal year to legally evade the significant tax increases in 2013. Also, the sequestration has reduced govt spending but many are predicting it won't survive beyond this year. The CBO has projected the deficit will widen significantly in a few years because of unrestrained entitlement spending. I wouldn't declare victory yet.

5
Comment #9 by Anonymous posted on
Anonymous
With each passing day we all get closer to death.  And our ability to take advantage of the time-value-of-money is fading away.  Just about every traditionally "safe" savings asset is worthless effort.  As savers, we are living during the worst possible time in the history of mankind when it comes to getting a return on cash and now bonds, including I Bonds.  I give up and expect to die completely poor and much sooner than I had ever planned when I was a child or young adult.

9
Comment #10 by Anonymous posted on
Anonymous
I agree whole heartedly with me1004. 

 

1
Comment #11 by Anonymous posted on
Anonymous
We have reall defecit that is over 17 TRILLION dollars.     Our entitlement programs are on shakey funding.  How many states have underfunded pension plans? So this year the defecit is only 600 and change. Should we be celebrating?   I guess this goes with the low inflation numbers the goverment is reporting and the low Social Security COLA increase.  All is rosy and the Obamacare web site has only glitches.  I have a bridge for you.

3
Comment #12 by Anonymous posted on
Anonymous
To Shorebreak - #3,

If you believe in Obama administration numbers, you might as well believe in Santa Claus. Obama lies every time he opens his mouth. Being democrat is one thing, but blindly supporting a liar is another thing. Keep your support for the democrats to yourself.

12
Comment #13 by Anonymous posted on
Anonymous
Savers continue, and will continue to be ****ed ad infinitum.

The full employment side of the Fed's dual mandate is structurally unachievable, and is obsolete as a result of the overwhelming combination of automation and globalization. No amount of Fed intervention in artificially supressing interest rates can neutralize or reverse the structural changes in employment/unemployment caused by these factors.

It's way past time to return to the Fed having price stability as its one and only mandate, and letting market forces regain their role in influencing interest rates.

3
Comment #14 by Anonymous posted on
Anonymous
Shorebreak #3, SS and Medicare now are run from the general budget fund, there is no longer trust fund. I guess most democrats never tell the truth.

4