Tuesday, December 13, 2011

Federal Reserve Leaves Rates Unchanged; Comments on Global 'Strains'

Following a one day meeting of the Federal Reserve Open Market Committee, as expected, the Committee announced that it would leave target interest rates at current levels.

In its statement, it said:
The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook.
The moderate growth forecast continues to suggest that the Fed simply forecasts the trend in front of it and has no clue as to when changes in direction or pace may take place.

As for strains in global markets, meaning the eurozone, that the Fed mentions, this a very strong indication that, if U.S. banks are threatened in any significant way by the eurozone crisis, the Fed will step in immediately to backup the banks.

Since the Fed continues to forecast the immediate future as a continuation of passed trends with dash of hope that things don't get worse, they see little problem with future inflation:
The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
This optimism on inflation is coming, I might add, from a Fed that is pumping money at a near 15% annualized rate.


  1. Did you also notice the Fed has been giving itself room to adjust its unofficial inflation target. It definitely sees big price inflation in 2012.

  2. I knew the Fed hated Syria lol

  3. Won't be the first time the Fed is caught off guard on inflation.

    You reminded me of this insight from Rothbard:

    “The fact that general prices were more or less stable during the 1920’s told most economists that there was no inflationary threat, and therefore the events of the great depression caught them completely unaware.”

  4. Inflation is already here. What do you think is driving stock prices?