Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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