Fed Open to Expanding QE as It Counters Talk of Tapering … Facing the risk of a fourth straight summertime slowdown, Federal Reserve officials raised the prospect of increasing the monthly pace of bond buying above $85 billion to guard= against any slump in growth or employment. The Fed's statement yesterday that it's "prepared to increase or reduce the pace of its purchases" was a signal that its $3.32 trillion balance sheet is a flexible tool for monetary policy that can be adjusted up or down, like interest rates. – Bloomberg
Dominant Social Theme: The Fed knows what it is doing, collectively and individually!
Free-Market Analysis: Is the Fed loosening or tightening and how do they know? Wouldn't the top bankers at the Fed need forward-looking indicators to be most successful? In other words, once an economy has sagged – or roared to life – isn't it too late to apply the necessary prophylactic?
Here's more from the Bloomberg article above:
The statement, released in Washington, countered discussion of the timing of a reduction in purchases at the Fed's March meeting. "There is more uncertainty so they probably wanted to correct a single-minded focus on tapering," said Roberto Perli, a partner at Cornerstone Macro LP, a research firm in Washington, and former member of the Fed board's Division of Monetary Affairs. At the same time, policy makers need to see more data before deciding whether to step up the pace of asset purchases, Perli said.
Stocks and Treasury yields declined yesterday after reports showed that U.S. manufacturing in April expanded at the slowest pace this year and companies took on the fewest workers in seven months. The reports added to evidence that the world's largest economy is slowing this quarter after picking up speed in the first three months of the year.
The Standard & Poor's 500 Index (SPX) advanced 0.4 The Federal Open Market Committee said it will keep for now the monthly pace of bond purchases at $85 billion, a strategy aimed at spurring a revival in sales of cars and homes by reducing mortgage rates and other long-term borrowing costs.
The Fed repeated that bond buying will continue "until the outlook for the labor market has improved substantially." It also left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn't exceed 2.5 percent.
The shift in the statement's language endorsed Chairman Ben S. Bernanke's message in March that the committee "could vary the pace of purchases" as the Fed gets closer or further away from its goals.
What do we learn from this? One feedbacker commenting on this article said it is obvious the top Fed bankers have no clue what to do next. One week, the bankers are indicating they will tighten because the economy is looking up and the next week they are speaking once again of a more accommodative policy.
This would be our perspective, as well. All this talk about monetary policy just covers up a basic futility.
They simply don't know. The black market US economy – spawned by hard times and high taxes – may be as much as US$4 trillion. Are these economic numbers taken into consideration?
And what about gold? The gold price is telling us that inflation is not as much of a factor in consumer worries. And yet there is no physical gold to be had at paper gold price, apparently.
What data to trust? How does Ben Bernanke know?
Maybe that's why he is leaving. The meme is collapsing around his head as he goes.
We predicted it nearly three years ago. Information on the Internet has thoroughly exposed the inadequacies of this kind of macro money management.
What about the employment figures? Where does the Fed stand on them? After all, they are probably half or less of the real number – or not, depending on the status of the black-market economy and what the government wants to portray.
This whole idea that a small group of people can sit around a table and examine politically massaged government statistics and then come up with monetary policy is increasingly and evidently insane.
It is a dominant social theme, a meme.
Central planning doesn't work. Price fixing doesn't work, especially price fixing of money stuff.
So what's on the menu? Surely not a measured recovery.
More chaos, no doubt. And that may suit some of our controllers just fine.