Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Fed's Extension of Low Interest Rates For Another Two Years Will Deliver Damaging Inflation

Interest-Rates / US Interest Rates Aug 11, 2011 - 11:41 AM GMT

By: Money_Morning

Interest-Rates

Best Financial Markets Analysis ArticleDavid Zeiler writes: With little ammo left in its arsenal, the Federal Open Market Committee (FOMC) yesterday (Tuesday) was unable to offer jittery markets anything more than a two-year extension of the Fed's low interest rates.

Instead of promising to keep rates at their low 0% to 0.25% level for an "extended period" as it has in its past several meetings, the FOMC said it would maintain those rates "at least through mid-2013."


However, Money Morning Contributing Editor Martin Hutchinson thinks that even this minimal action will do more harm than good.

"This is worse than QE3," Hutchinson said, referring to the potential for a third round of quantitative easing, in which the Fed has pumped trillions of dollars into the economy by purchasing Treasury bonds.

"What makes the Fed think it can forecast conditions two years in the future?" Hutchinson continued. "It has already been surprised on both growth and inflation just this year, since its January forecasts, which forecast 2011 growth of 3.4% to 3.9% and inflation of 1.3 to 1.7%. It's notable that three of the five regional Fed presidents - the guys actually in touch with the market - voted against."

Hutchinson has warned repeatedly that the Fed's policies have not only failed to jumpstart the economy, but have spurred inflation and helped keep unemployment high.

"This action has greatly increased the chances of the U.S. economy experiencing hyperinflation, on top of its other woes," Hutchinson said. "It does nothing for growth, the current problem."

If U.S. Federal Reserve Chairman Ben S. Bernanke's intention was to reassure the markets, it didn't work. The markets, which had rallied as much as 2% earlier in the day, swung wildly after the FOMC statement was released at 2:15 p.m. Eastern Daylight Time.

At one point, the Dow Jones Industrial Average was down 150 points and the Standard and Poor's 500 Index down more than 1%, though both bounced back as the afternoon wore on.

"The market needs a sense that the Fed is willing to do more today, rather than merely say that they're not going to tighten in mid-2012 versus 2013," Senior Economist Cary Leahey of Decision Economics Inc., told Reuters.

The recent stock market plunge - the S&P 500 index fell 11% in the three days ending with Monday's disastrous session - coupled with a barrage of reports pointing to an economy in danger of slipping back into recession, put tremendous pressure on the Fed to take some kind of action to reassure investors.

Wall Street clearly was expecting more, but the Fed had few options in delivering any sort of policy change that could make an impact. It has already done about as much as it can do; the Fed's interest rates are near zero, and the central bank has injected $2.9 trillion into the economy with its quantitative easing programs (QE1 and QE2).

The Fed's ineffectiveness in reviving the economy has raised questions over whether monetary policy is the right medicine.

"I don't think you have a money problem right now," Jerry Webman, chief economist for OppenheimerFunds, told Marketwatch. "Monetary policy is about controlling the supply and price of money, and right now there's ample supply, and money can be had at a very cheap price."

Donald Kohn, a fellow at the Brookings Institution and former Fed vice chairman, told The New York Times that while the Fed can keep injecting trillions into the economy, it can't control what people do with it: "I think the major problem here is that people don't want to spend, and that's about confidence in the economy and the government."

The FOMC at least acknowledged that things have gotten worse since its last meeting in June.

"Economic growth so far this year has been considerably slower than the Committee had expected," the FOMC said, noting the high unemployment, flat consumer spending and the weak housing market.

Unfortunately, the two-year extension of the Fed's low interest rates - which have remained near zero since December 2008 - probably won't do anything for the economy and could even be seen as an admission that things won't improve for a long time.

"The statement was extremely negative in its outlook on the economy," Omar Eisner, chief market analyst for the Commonwealth Foreign Exchange, told Reuters. "By pegging the extraordinarily low interest rates to a date in the distant future, the Fed has essentially said that they see the current level of weakness lasting far longer than previously expected. This is definitely a negative for risk appetite."

Source :http://moneymorning.com/2011/08/10/two-year-extension-of-feds-low-interest-rates-will-deliver-damaging-inflation/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

gAnton
11 Aug 11, 17:19
The Fed's Future Is Colored Brown

From what I read, it's getting harder and harder for Americans abroad to change their dollars into local currencies (in the not too distant past, foreign businesses were all too happy to accept dollars, but certainly not now). Also, the true rate of US inflation due to continuing excessive creation of money "out of thin air" is probably above 10%, and nations with large dollar reserves are very unhappy about the fact that they are rapidly losing most of their money. For example, China is giving the US sermons on financial responsibility, organizing secret meetings with other nations to dethrone the dollar as the international currency, downgrading the US government's credit, etc.. Even the US sponsored IMF is recommending that a new international currency be created.

Given the above, it's just a matter of time before the dollar is dethroned, and it's much more likely to happen sooner than later. Once this occurs, Bernanke and his Fed will be irrelevant to the world economy, and of less use to any conceivable purpose than are tits on a boar.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules