In a release issued today by the Board of Governors of The Federal Reserve System, were details on the Federal Open Market Committee (FOMC) statement following the September 17th-18th meeting.
Within the notes a few key statements on inflation were made, which may provide clues as to the directional “bias” of commodity and share markets this winter & spring.
Bernanke’s Fed indicated that inflation rates are simply not high enough, in that, “Mortgage rates have risen further and fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.”
From Tekoa Da Silva, Bull Market Thinking:
The Fed further commented that, “The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace…but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy…The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.”
Speaking towards continued asset monetization taking place in the mortgage markets, Bernanke’s Fed noted that, “[We'll] continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month…[which] should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.”
Reassuring the markets of these continued asset purchases, as well as ultra-low interest rates and other forms of future quantitative easing, Bernanke’s Fed concluded by saying, “A highly accommodative stance of monetary policy will remain appropriate for a considerable time…In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as…longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy…When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”
Voting for the continued monetary easing were all Fed members, except Esther L. George, who for many consecutive meetings has been the lone voice indicating that, “The continued high level of monetary accommodation increase[s] the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
Botton Line: The US Fed is committed to continued asset purchases and quantitative easing for the foreseeable future, or until “inflation expectations” increase, ie.—until the market begins bidding up commodity prices to inhospitable levels. Furthermore, the group feels inflation rate levels are currently below their targets, which suggests the monetary accelerator will continue to be pushed to the floor—until a spark-up occurs.
Lastly, one can only wonder the informal & internal thoughts of Fed member Esther L. George, as she continues to be the only voice among the group repeatedly voting against continued monetary expansion, indicating the risk of, “an increase in long-term inflation expectations.”
Esther L. George appears to be warning of the risk of a rapid increase in commodity prices, otherwise known as “bad inflation”.
To read the Federal Reserve’s latest FOMC Statement in it’s entirety, visit: FederalReserve.gov
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Tekoa Da Silva
Bull Market Thinking