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The Federal Reserve could take the historic step this week of announcing an explicit target for inflation, a move that would fulfill a multi-year quest of the central bank's chairman, Ben Bernanke.
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While Bernanke has touted a numerical inflation goal as a cornerstone of central bank best practices for years, the idea has become timely because it could help quell nagging doubts that the Fed's unprecedented easy money policies are setting the stage for a nasty bout of inflation.
The U.S. economy strengthened toward the end of last year, with job growth accelerating and the unemployment rate dropping to a near three-year low of 8.5 percent.
But the recovery is not expected to retain the momentum.
By announcing a target, the Fed could smooth the path to another round of bond buying should the recovery falter.
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QE doesn't do anything to help ordinary Americans. It merely keeps enough cash in the Ponzi scheme to continue for a while longer.
Opex will be critical, I agree.We need to hold these levels by week's end. If we do.. We target 1900 by april...
My grandfather survived the Weimar hyperinflation, my family has passed the stories about this time on from generation to generation. It's stunning to see how history rhymes itself...So, it's ZIRP for the next 2 + years... How horrible for savers, no safe and decent income anywhere.
So, no interest income until 2015... And what does THAT have to say about what TPTB think is going to happen to our economy?
I would HAVE to think that a fair amount of money seeking safety is about to chase gold and silver prices up. Way up.
Future historians will write about how dumb we were to allow our economy to be wrecked by QE-to-infinity and deficit spending...
It's stunning to see how history rhymes itself...
No inflation or GDP target this time, ...
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.
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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. ...
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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.
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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.
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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.
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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.
KMS.. They are using hedonic regression to mark productivity gains MUCH higher than they should be. http://en.wikipedia.org/wiki/Hedonic_regression
The dollar really got under selling pressure after the FOMC announcement, especially against the euro.
I think it's more than that.It's the short squeeze we've been expecting for months.
I think it's more than that.
... 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.”
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That's the key word.get the velocity up
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.
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