Fed to announce inflation target; set foundation for qe#

[bushi]

It's stunning to see how history rhymes itself...

My high school history teacher used to say: "the only sure lesson that we can learn from the history, is that the history has never taught us anything"

Great sense of humor of him, given his profession, but oh so accurate.

I would personally add to this, that critical thinking and common sense is also missing from the "society" on the average, and since our Democracy in general works that way, that to be elected, one need to "ring the bells" for the majority, well, here's the outcome: stupidity rules.


Back on the topic; it is official: Ben Bernanke, while he hates sound currency, small investors and sane economy in general, is PM bugs' Best Friend (hopefully, not Forever)! Every time he opens his pie hole, Gold skyrockets. We shall make a petition to him, to keep him talking.

Actually, could we have a topic, that would collect the dates of future communications from the Fed - I think it would help the traders among us to make few more bobs. It is a sure bet!

[PMBug]

No inflation or GDP target this time, ...

Dewey defeats Truman!

Well, we got an inflation target from the Fed. Basically, thinking at the Fed has been eliminated. The process has been automated. Bernanke has convinced the Fed board to adopt Core PCE as a determinate of monetary policy. So long as CPCE stays below 2%, Ben is going to have his foot planted on the monetary metal. It’s “full speed ahead” according to the Chairman. He's pushed things off until 2014 - a very long time from now.

My question: “Why is the Fed using CPCE versus another measure of inflation?” The very good news is that there is answer, and it comes from a very "reliable" source – The Federal Reserve. A detailed analysis on this topic was conveniently made public just a month ago.
...

More: http://www.zerohedge.com/contributed/bernanke-goes-all

[PMBug]

Another source confirms:

...
The Federal Open Market Committee committed to holding inflation at 2 percent, concluding years of debate that Bernanke advanced after becoming Fed chief in 2006. ...
...
The personal consumption expenditures price index -- the price measure officials chose for their inflation target -- is expected to be below the 2 percent goal at the end of this year. The FOMC’s central tendency estimate for the PCE index was 1.4 to 1.8 percent for this year, 1.4 percent to 2 percent next year, and 1.6 percent to 2 percent in 2014. The measure rose to 2.5 percent for the 12 months ending November.
...

More: http://www.bloomberg.com/news/2012-0...tion-goal.html

[swissaustrian]

So it's defacto inflation targeting without an official announcement.
Typical central bank doubleplusgoodspeak.

[PMBug]

Here's the Fed's press release:

Following careful deliberations at its recent meetings, the Federal Open Market Committee (FOMC) has reached broad agreement on the following principles regarding its longer-run goals and monetary policy strategy. The Committee intends to reaffirm these principles and to make adjustments as appropriate at its annual organizational meeting each January.
...
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances.
...

http://www.federalreserve.gov/newsev.../20120125c.htm

[ancona]

Ummmm that would be quite bullish for the shiny stuff. I wish I had some dry powder left....

[KMS]

We're way above 2%. And I say that because 'way above' can easily be argued. If I was speeding down a highway 100% faster than the speed limit, I would be going 'way above' the speed limit.

This is what the Fed is doing. And whenever the number they get isn't what they wanted to see, they change their math so that it can be reported closer to their 'goal' of 2%.
I wish all those jerks that get to ask questions at a press conference would ask some questions that draw tears and blood, instead of asking him to repeat himself for 20 minutes.

[dereksatkinson]

KMS.. They are using hedonic regression to mark productivity gains MUCH higher than they should be. http://en.wikipedia.org/wiki/Hedonic_regression

[KMS]

Absolutely they are marking gains higher than they should be.

We don't need to point out the song and dance the Fed is doing to each other at PMBUG. I know we're all aware of the farce. It is why we're here. I feel bad for spouting off about it, but it does just get frustrating that the Fed can just make up numbers to give the illusion to "Attention Deficit Disorder America" that everything will work out in the long run. My faith is gone, my trust is broken, I am trapped in this shit, and I am pissed about it.

[PMBug]

Hopefully this is just an effort to shore up political cover for the QE plans. Worst case (down the road almost a given), the announcement gives the Fed carte blanche to engage in QE implicitly - without explicit notice to the markets.

[dereksatkinson]

Hopefully this is just an effort to shore up political cover for the QE plans. Worst case (down the road almost a given), the announcement gives the Fed carte blanche to engage in QE implicitly - without explicit notice to the markets.

Or it gives them the cover for the QE the are already undertaking... I suspect that's part of the reason why the spreads improved over in Europe.

[swissaustrian]

KMS.. They are using hedonic regression to mark productivity gains MUCH higher than they should be. http://en.wikipedia.org/wiki/Hedonic_regression

This + substitution bias: http://en.wikipedia.org/wiki/Substitution_bias

[swissaustrian]

The dollar really got under selling pressure after the FOMC announcement, especially against the euro.

[dereksatkinson]

The dollar really got under selling pressure after the FOMC announcement, especially against the euro.

It's the short squeeze we've been expecting for months.

[swissaustrian]

It's the short squeeze we've been expecting for months.

I think it's more than that.

[dereksatkinson]

I think it's more than that.

Well.. It's natural that they are going to have to price in further debasement of the USD. the move is going to be exaggerated by euro short covering.

[PMBug]

Rickards weighs in:

... This is what Rickards had to say about the Fed’s press conference and what they are planning in the future: “Well it really was an extraordinary press conference that the Chairman gave the other day. This one was quite a fireworks show in terms of how Bernanke was, in effect, engaged in a massive disinformation campaign with reporters and by extension the American people, over the Fed’s true intentions. I watched it and was really blown away by the tenor of it.”

Bernanke made it crystal clear they were going to go to some kind of quantitative easing. One of the reporters asked, ‘Do you worry that inflation may get out of control?’ The Chairman (Bernanke) responded, ‘We’re targeting 2% inflation.’ Of course, I don’t believe that. My belief is they are targeting something like 4% or 5%.

When they hit 4% or 5% and, in effect, (they will) spook people into spending money or getting into riskier assets. They want to stampede people into lending and spending again to get the velocity up and get the economy going. That’s the plan. It’s a game of expectations, it’s a game of psychological manipulation. One of the ways to do that is to set expectations low and then deliver a much higher inflation number.

So when the reporter asked him if inflation could get away from him, Bernanke said, ‘Yes.’ His exact words were, ‘Inflation may move away from desired levels.’ To me that was code for saying it will move away from desired levels.”
...

http://kingworldnews.com/kingworldne...he_Dollar.html

[swissaustrian]

Rickards:

get the velocity up

That's the key word.

[ancona]

They had better be extremely careful; what they wish for as regards velocity of money. If all the cash sloshing around in bank excess reserves gets out on the street, the inflation we will see would be legendary, maybe even hyper. We should have let the big banks all fail in 2008, allow the system to flush out the bad decisions and greedy bankers. There should have been mass prosecutions and reparations paid to those who were lied to and stolen from. Instead, we rewarded them by permitting them to double down on CDS to the tune of trillions, we allowed them to borrow money for free, then paid them interest to redeposit it with the government and let them still pay out ridiculous bonuses. We now permit FHA to back loans on houses with three percent down by the consumers and are spending hundreds of billions of dollars to artificially prop up home values, instead of allowing prices to find equilibrium naturally.

No, I think more velocity of money is not what we need. What we need is a sane fiscal policy where recklessness and greed are punished instead of rewarding it. We need the present paradigm to collapse so the phoenix may rise from the ashes and permit us to right all that is wrong with the current system.

If "they" do not allow it to happen organically, it will happen suddenly and without warning, plunging the entire globe in to a depression from which we will not emerge for a decade.

I quite suspect we will experience the latter. But that's just me.

[PMBug]

The financial-market crisis is not over but has grown into a vicious sovereign-debt crisis. Nevertheless, monetary policy makers of the major economies go on to practice the same sort of policy that has led to the crisis. Following the model of inflation targeting, they continue to disregard the quantity of money and the amount and kind of credit creation. As they did before, central bankers cut interest rates as low as they can. Few seem to remember that the monetary-policy concept of inflation targeting was adopted with the promise that low and stable inflation rates would produce financial and economic stability. Reality has not confirmed this assurance. On the contrary, inflation targeting was instrumental in bringing about the current financial crisis.
...

More: http://mises.org/daily/5885/Inflatio...-Hits-the-Wall