Archive for the ‘Federal Reserve’ Category
During its recent committee meeting, the Federal Reserve announced that it is time to shut off the government money taps, winding up most of the U.S. specialty liquidity programs and starting by shutting down currency swaps with most foreign central banks by February 1, 2010. At the time, the Fed did not even address the risk of inflation or hyperinflation in the short term. Thus, the expectation is that interest rates will remain at ultra-low levels close to zero for at least the first half of 2010, if not longer. Eventually, however, interest rates will have to go up if the economy finally starts growing at a faster pace.
My favorite investment analyst must be ready to have kittens. Of course, Jim Rogers has advocated the abolition of the Federal Reserve for a number of years, and this latest government bailout must have him steaming.
He argues that it was the central bank that helped create (but not exclusively) the housing crisis that we’re experiencing now. This precipitated the credit crunch and, subsequently, the financial crisis on Wall Street.
Commodity prices were then hit hard, as Wall Street investment banks sold everything in order to cover their losses from failed mortgages. It’s a vicious cycle, there’s no doubt about it. The fact of the matter is that the market must be allowed to correct itself, especially since the marketplace created the problem in the first place.
Rogers is buying airline stocks now and he likes the yen, the Swiss franc and agricultural commodities. He is very bearish on the U.S. dollar, and the $700-billion Wall Street bailout package must be the icing on the cake.
One thing I’m really starting to realize is that the monetary policy cycle is much longer in duration than most people give it credit for. While former Fed Chairman Greenspan was hailed as a great steward of the economy and Wall Street capital markets, that whole picture is now being unwound.
All the years of exceptionally reduced interest rates and easy money have now come to a head. Now we have a hungover real estate market, growing inflation, and a weak Main Street economy.
There really is a long-term, cumulative effect to monetary policy and, although it takes a long time to develop, the … Read More
Yesterday, the U.S. Federal Reserve Open Market Committee met to set interest rates — and it did what most expected, which is nothing. “Standing Pat” is the official term when the Fed neither raises nor reduces interest rates. Here’s the statement the FOMC issued yesterday after its meeting:
“Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation expectations have increased.” Old news, especially for those who regularly read this column.
In my many years of watching the Fed, I’ve learned one thing: They are slow to react. Remember all that talk by Bernanke, Paulson and even the President earlier this month about a stronger U.S. dollar being in the best interest of the country? Well, that talk certainly wasn’t translated into an interest-rate hike yesterday.
At the most, the Fed now is simply “talking” about inflation being a bigger problem in light of a bottoming-out economy. But I don’t believe the Fed is convinced inflation really is a big problem.
My question continues to be the same:
Aside from oil prices and food prices, what else is rising in price these days? We know housing prices are falling. The stock market is down about 10% since mid-May. Automobiles and consumer products are declining in price. (And if inflation was out of check as we read in most newspapers, wouldn’t the price of gold be over $1,000 an ounce?)
So, is all the worry about inflation justified?
Let’s answer this question with another question: If all the worry about inflation was justified, wouldn’t the Fed have raised interest rates at least a … Read More
A 75-basis-point cut in the Fed Funds rate to 2.25% by the Federal
Reserve on Tuesday along with some decent earnings from several financial institutions helped to drive robust buying in the markets. Yet the fiasco that is occurring at The Bear Stearns Companies, Inc. (NYSE/BSC) remains a concern that the credit crunch may get worse.
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