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No end in sight for Fed stimulus as inflation sags


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#1 concert andy

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Posted 01 May 2013 - 12:53 PM

 
WASHINGTON (Reuters) - The Federal Reserve's debate over monetary policy could begin to shift away from the prospect of reducing stimulus toward a discussion about doing more, given the signs of economic weakness and slowing inflation.
 
But policymakers are not there yet.
 
At a two-day meeting that wraps up on Wednesday, the Fed is widely expected to maintain its monthly purchases of $85 billion in bonds to support an economic recovery that is nearly four years old but still too weak for the job market to truly heal.
 
With the central bank's favored inflation gauge slipping and employment growth faltering, Fed officials could again find themselves in the uncomfortable position of having to shift from talk of curbing stimulus to the possibility of doing more.
 
Currently, analysts see the Fed buying a total $1 trillion in Treasury and mortgage-backed securities during the ongoing third round of quantitative easing, known as QE3. Until recently, analysts had believed the Fed would start taking the foot off the accelerator in the second half of the year.
 
Now, things are looking a bit more shaky.
 
The housing market continues to show signs of strength, with home prices posting their biggest yearly gain since 2006, the year the market began a historic slide that snowballed into a global financial crisis.
 
However, the industrial sector is not quite as perky. Durable goods orders posted their largest drop in seven months in March, while an index of Midwest manufacturing showed an unexpected contraction in the sector for April.
 
Economic growth did rebound in the first quarter after a dismal end to 2012, but the 2.5 percent annual rate of expansion fell short of economists' estimates, and economists are already penciling in a weaker second quarter.
 
At the same time, inflation has steadily been coming down. The Fed's preferred measure of core inflation, which excludes more volatile food and energy costs, rose just 1.1 percent in the year to March. Overall inflation was up just 1 percent, the smallest gain in 3-1/2 years.
 
The Fed targets inflation of 2 percent.
 
CHECKING THE TOOLKIT
 
Despite the economy's softer tone, a wait-and-see attitude seems the most likely approach for now. The Fed is expected to nod to the economy's disappointing performance when it announces its decision at 2 p.m. (1800 GMT), even as it maintains its course.
 
But if the economy's fortunes do not improve, the central bank may well look for fresh ways to boost its support to the economy -- increasing the amount of assets it is buying is just one option.
 
The Fed could announce an intent to hold the bonds it has bought until maturity instead of selling them when the time comes to tighten monetary policy. Fed Chairman Ben Bernanke has already raised this as a possibility.
 
Central bankers could also set a lower unemployment threshold to signal when the time might be ripe to finally raise overnight interest rates, which they have held near zero since December 2008. Currently, the threshold stands at 6.5 percent, provided inflation does not threaten to breach 2.5 percent.
 
Research suggests such "forward guidance" about the future path of interest rates can have a strong impact on current borrowing costs, and one Fed official -- Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank -- has already suggested lowering the threshold to give the economy a boost.
 
"Forward guidance would be perceived as having lower costs (than bond purchases) by most, I think, and for that reason I think it could be the preferred avenue, especially if more stimulus was projected to be needed for a long period of time," said Roberto Perli, a partner at Cornerstone Macro in Washington and a former Fed economist.
 
Analysts generally agree that is a debate for the future, if the Fed even gets there at all.
 
Victor Li, a former regional Fed economist who teaches at Villanova University in Pennsylvania, said employment growth would have to be consistently below the 100,000 jobs per month pace in combination with core inflation of around 1 percent for the Fed to consider a greater easing of monetary policy.
 
"There is just no evidence that this is going to happen."
 
Others are less sanguine. Justin Wolfers, an economics professor at the University of Michigan's Gerald Ford School of Public Policy, said the risk that prices will drop persistently, causing further economic damage, cannot be ruled out.
 
"What's more relevant than the current inflation trend is what this means for forecast inflation," Wolfers said. "And I think even more relevant than the Fed's official point estimate for inflation is the probability that deflation looms as a real threat. Inflation rates lower than 1 percent certainly raise a greater risk of deflation."


#2 TakeAStepBack

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Posted 01 May 2013 - 02:01 PM

The Fed's preferred measure of core inflation, which excludes more volatile food and energy costs, rose just 1.1 percent in the year to March. Overall inflation was up just 1 percent, the smallest gain in 3-1/2 years.

 

 

:lol:



#3 concert andy

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Posted 01 May 2013 - 02:16 PM

Just that small portion?

 

No :lol: at the entire effort?



#4 TakeAStepBack

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Posted 01 May 2013 - 02:45 PM

Nah. My assessment is of no relevance. I do think it is funny that the base gauge for inflation that the federal reserve likes to use omits key indicators such and food and energy...among other things.

 

This is where the tire meets the road:

 

 

Central bankers could also set a lower unemployment threshold to signal when the time might be ripe to finally raise overnight interest rates, which they have held near zero since December 2008. Currently, the threshold stands at 6.5 percent, provided inflation does not threaten to breach 2.5 percent

 

 

So, if we are aware that raising interest rates will in turn create a downturn, why on earth are we proceeding to counteract the last downturn with the policies that will inevitably lead to another downturn? It's stupid, to say the least. Furthermore, all of these stimulus efforts are failing. As we've discussed beofre, this has been the policy of the federal reserve since almost day 1. Every self imposed downturn is met with "stimulus" which fails to stabilize the economy overall, adn at the same time creates massive unintended consequences.

 

So the question that I have for central bank enthusiasts is; do these people know that what they are doing will lead to yet more harm and then further intrusion on their part as it has no many times in the past, or do they really believe these policies are helping?

 

Because if it is the former, I believe we've left reality for lalaland and there aint no comin' back.

 

remorse.jpg



#5 concert andy

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Posted 01 May 2013 - 02:50 PM

I am not a fed enthusiast, but I do applaud the Feds efforts to deal with the entire "system", which congress keeps mucking up with more and more spending and not paying down the debt in any real manner.  The efforts may be futile, but at least they try.



#6 Tim the Beek

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Posted 01 May 2013 - 03:00 PM

I may have ranted about this before, but something that's bothering me more each time I think about it is the degree to which Uncle Ben & Co. are screwing reitred folks who saved all of their lives in good faith, and planned on living on the income stream from those savings.



#7 Tim the Beek

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Posted 01 May 2013 - 03:01 PM

Free market, my ass...



#8 Tim the Beek

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Posted 01 May 2013 - 03:03 PM

I am not a fed enthusiast, but I do applaud the Feds efforts to deal with the entire "system", which congress keeps mucking up with more and more spending and not paying down the debt in any real manner.  The efforts may be futile, but at least they try.

 

Seems to me the Fed's actions enable Congress to keep doing more of the same...



#9 Tim the Beek

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Posted 01 May 2013 - 03:05 PM

If interest rates were anything like market rates, which they would be without the Fed being such a huge presence in the market, maybe Congress would wise up and say "we can't afford to do this any more."



#10 TakeAStepBack

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Posted 01 May 2013 - 03:19 PM

Seems to me the Fed's actions enable Congress to keep doing more of the same...

 

 

This. And I totally agree with hosing savers in order to create free money for gamblers who fucked up so they can continue gambling on a  massive scale. At our expense. But what can we do? People seem pretty happy with low interest rates and pegged inflation.



#11 concert andy

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Posted 01 May 2013 - 03:35 PM

Seems to me the Fed's actions enable Congress to keep doing more of the same...

 

 

If interest rates were anything like market rates, which they would be without the Fed being such a huge presence in the market, maybe Congress would wise up and say "we can't afford to do this any more."

 

 

That is my point.  The fed does one thing, and Congress does nothing to support its actions.

 

Analogy:  Congress is a drinken sailor on leave from war.  The sailor does not care about the future because tomorrow he will be back in the front lines.

 

Analogy:  I feel the fed is playing poker, and each time they ask for a new card/s, cogress gives them nothing to help the hand they were dealt.

 

This. And I totally agree with hosing savers in order to create free money for gamblers who fucked up so they can continue gambling on a  massive scale. At our expense. But what can we do? People seem pretty happy with low interest rates and pegged inflation.

 

I went through this a long time ago, but when you put money into a 401K.  First thing they tell you is, when you are young you can be more aggressive with your investments, but by the time you get to your 50's, most of your money should be in Cash or something very conservative.  Because you have built this equity, do not lose it to market instability.

 

How is this the Feds fault? 

 

At some point your personal finances are your fault, not the governments fault.  I think people need to take personal responsibility and not blame all their problems on the gubment.

 

 

 

But in a grander picture I understand both of your points..



#12 TakeAStepBack

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Posted 01 May 2013 - 03:41 PM

People that build retirement in large cash sums used to be able to rely on spending the interest on their principle. With .3%, at best on interest of your savings, retired folks have been chewing up their principle from a  lack of interest. That's what Tim means I believe, and that is what i meant as well. The artifical manipulation of interest rates hoses savers and especially those who are retired and saved.



#13 Tim the Beek

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Posted 01 May 2013 - 03:43 PM

I went through this a long time ago, but when you put money into a 401K.  First thing they tell you is, when you are young you can be more aggressive with your investments, but by the time you get to your 50's, most of your money should be in Cash or something very conservative.  Because you have built this equity, do not lose it to market instability.

 

How is this the Feds fault? 

 

At some point your personal finances are your fault, not the governments fault.  I think people need to take personal responsibility and not blame all their problems on the gubment.

 

 

 

But in a grander picture I understand both of your points..


I'm not talking about equity markets. I'm talking about people who saved over the course of their lives who, as you suggest, have switched their investment allocations to less risky investments which, until recently, could still be expected to yield a reasonable rate of interest.

The fact that money market yields are at, what, under 10 basis points right now, is entirely the Fed's fault. It has nothing to do with personal responsibility. Savers are being fucked hard, with no lube.



#14 TakeAStepBack

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Posted 01 May 2013 - 03:43 PM

Not to mention inflation adjustments. They are getting wrecked by these economic policies. So, be responsible! Be a saver! Is all a bunch of bullshit if the federal reserve is going to jam it up your ass and break it off for doing so. Old people would be better off maxing out credit cards, paying the bare minimum and dying without paying any of it back.



#15 Tim the Beek

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Posted 01 May 2013 - 03:43 PM

People that build retirement in large cash sums used to be able to rely on spending the interest on their principle. With .3%, at best on interest of your savings, retired folks have been chewing up their principle from a  lack of interest. That's what Tim means I believe, and that is what i meant as well. The artifical manipulation of interest rates hoses savers and especially those who are retired and saved.

 

What he said.



#16 TakeAStepBack

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Posted 01 May 2013 - 03:44 PM

I'm not talking about equity markets. I'm talking about people who saved over the course of their lives who, as you suggest, have switched their investment allocations to less risky investments which, until recently, could still be expected to yield a reasonable rate of interest.

The fact that money market yields are at, what, under 10 basis points right now, is entirely the Fed's fault. It has nothing to do with personal responsibility. Savers are being fucked hard, with no lube.

 

I like the cut of your jib, fella.



#17 Tim the Beek

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Posted 01 May 2013 - 03:52 PM

That is my point.  The fed does one thing, and Congress does nothing to support its actions.

 

Analogy:  Congress is a drinken sailor on leave from war.  The sailor does not care about the future because tomorrow he will be back in the front lines.

 

Analogy:  I feel the fed is playing poker, and each time they ask for a new card/s, cogress gives them nothing to help the hand they were dealt.

 

 

And The Ben Bernank is the tavern keeper at the pier who says, "keep drinking. And put it on your credit card. I own the bank, and will let you borrow your drinking money for free."

Congress is the one drawing the cards, and the Fed is dealing them a very strong second place hand...IMO



#18 concert andy

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Posted 01 May 2013 - 03:55 PM

And The Ben Bernank is the tavern keeper at the pier who says, "keep drinking. And put it on your credit card. I own the bank, and will let you borrow your drinking money for free."

Congress is the one drawing the cards, and the Fed is dealing them a very strong second place hand...IMO

 

It is a vicious circle.  Blame one or the other or both.



#19 TakeAStepBack

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Posted 01 May 2013 - 04:00 PM

Both shoulder a fair amount of blame. At the same time, I dont see a lot of the voting block making a serious effort to remove these types of policy makers from office either. So I guess we can all bear the blame to some extent.



#20 Tim the Beek

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Posted 01 May 2013 - 04:08 PM

I like the cut of your jib, fella.

 

:lol:



#21 Tim the Beek

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Posted 01 May 2013 - 04:09 PM

It is a vicious circle.  Blame one or the other or both.

 

I do blame them both. Never said I didn't. You seem to be the one stickin' up for one side of the equation...



#22 Tim the Beek

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Posted 01 May 2013 - 04:20 PM

One more thing, since it came up, and then I'll breathe.

"Personal responsibility."

Current Fed policy is a disincentive to this. It's designed to try to get people out and spending money on shit they don't need in the pursuit of the fantasy of infinite growth.



#23 Tim the Beek

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Posted 01 May 2013 - 04:26 PM

Guess I didn't breathe for that long. :lol:

We've debated whether or not taxation is theft here.

Intentionally keeping interest rates below the rate of inflation is insidious stealing of the worst kind.
 

The Fed sucks. It really, really sucks.



#24 Julius

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Posted 01 May 2013 - 04:30 PM

The news isn't even out until 2PM eastern. This is all pre-news. 



#25 TakeAStepBack

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Posted 01 May 2013 - 04:52 PM

Guess I didn't breathe for that long. :lol:

We've debated whether or not taxation is theft here.

Intentionally keeping interest rates below the rate of inflation is insidious stealing of the worst kind.
 

The Fed sucks. It really, really sucks.

 

The worst hidden taxation there is.



#26 concert andy

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Posted 01 May 2013 - 05:21 PM

One more thing, since it came up, and then I'll breathe.

"Personal responsibility."

Current Fed policy is a disincentive to this. It's designed to try to get people out and spending money on shit they don't need in the pursuit of the fantasy of infinite growth.

 

They both suck, I just think congress sucks more.

 

 

Yes the fed are trying to boost the economy, which was destroyed by years of congress not paying down our debt.

 

 

The fed is reactionary and does what it can to help today (in general).

 

Congress should be more responsible, and be held more accountable.



#27 TakeAStepBack

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Posted 01 May 2013 - 05:29 PM

If there was no monetary inflation policy, congress would be shackled by sound money. So it's not one over the other. it's both. The Federal reserve gifts congress with the ability to over spend (the warfare/welfare state) and the federal reserve got its authority through congress.



#28 concert andy

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Posted 01 May 2013 - 05:30 PM

If there was no monetary inflation policy, congress would be shackled by sound money. So it's not one over the other. it's both. The Federal reserve gifts congress with the ability to over spend (the warfare/welfare state) and the federal reserve got its authority through congress.

 

 

Like I said, blame the congress. In this case for approving this power.



#29 TakeAStepBack

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Posted 01 May 2013 - 05:42 PM

I do. And the federal reserve system itself is also to blame. Being it was an act of congress to create the central bank, they get blamed too. I'm not even sure what we're bickering over here.



#30 concert andy

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Posted 01 May 2013 - 05:43 PM

I do. And the federal reserve system itself is also to blame. Being it was an act of congress to create the central bank, they get blamed too. I'm not even sure what we're bickering over here.

 

 

:lol:

 

I said something to the effect of that I blame congress more than the fed.  from there it gets hazy.



#31 Tim the Beek

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Posted 01 May 2013 - 05:44 PM

Congress, the Fed, Corporate America and American consumers all share the blame for the state of our economy...



#32 TakeAStepBack

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Posted 01 May 2013 - 05:45 PM

Congress, the Fed, Corporate America and American consumers all share the blame for the state of our economy...

 

 

In that order? (for Andy's sake)  :funny1:



#33 Tim the Beek

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Posted 01 May 2013 - 05:47 PM

:lol:

Sure, why not. :mrgreen:



#34 Tim the Beek

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Posted 01 May 2013 - 05:49 PM

Though truthfully, it goes something like CA>AC>F>C IMO.



#35 Tim the Beek

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Posted 01 May 2013 - 05:52 PM

But I'm not always right...



#36 concert andy

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Posted 01 May 2013 - 05:59 PM

In that order? (for Andy's sake)  :funny1:

 

 

:funny1: