Fed "Falling Behind The Curve"?
Bloomberg News notes increased nervousness among traders that the Fed will "fall behind the curve" after comments from Ben Bernanke that indicated the Fed might pause in its rate hike campaign soon. The market have reacted by raising the spread between regular 10 year securities and the TIPS to a record 2.68% (Still unrealistically low spread in my view) and by sending the dollar sharply lower both against gold and against other paper currencies. Gold now costs $655, the U.K. pound $1.825, the euro $1.26, the Canadian dollar 90 cents ,the Aussie dollar 75 cents and the Japanese yen 0.885 cents ($1 is worth 113 yen), all much higher than just a week ago and all much higher than during the beginning of the year. This trend is likely to continue , particularly against gold.
The Fed's dilemma is that if it does not pause in its rate hike campaign soon, it runs a great risk of sending the U.S. economy into a recession. But if it does pause, price inflation is likely to accelerate further and the market confidence in the Fed's "inflation-fighting" (i.e. its willingness to limit its own inflating) credentials will erode further. Either way, Bernanke is going to have a hard time and the outlook for the dollar is not good.
Comments (5)
The Fed's dilemma is that if it does not pause in its rate hike campaign soon, it runs a great risk of sending the U.S. economy into a recession.
Sorry for spamming the blog with double-posting, but this information seems more relevant here than where I just posted it.
Williams believes GDP is contracting now. The government reported only a 1.1% increase in the fourth quarter. Even in an election year, and despite the government’s best efforts to paint a pretty face, all it could muster was a measly 1.1%. More likely, the economy actually contracted 2% in the fourth quarter. This means we are in a recession NOW.
This is not conspiracy-theory stuff. As Williams points out, it’s all disclosed in the footnotes in the government’s reports. All he is doing is backing out many of the changes to more realistically compare these numbers with the numbers of the past.
LinkThe original research that is mentioned in this article is here ($), but if you poke around at this website (gillespieresearch.com) you will find some free articles which describe the reasons for Williams' rolling back of the official statistics. Look under the heading on the top right of the page, "A Primer On Government Economic Reports".
Published: April 30, 2006 5:50 PM
Stefan,
I think your post accurately describes the problems facing the FedRes and U$D holders, writ large.
The trend, in place, will continue until it changes, towit: lower U$D, lower Bond prices, higher Commodity prices.
Bernanke has a royally difficult task at hand. At best, we will see a Worldwide(G-7) devaluation of Fiat v. Physical with the U$D experiencing a greater than average write-down. This shouldn't bode well for transactions that depend on credit to have their prices met( think: RE ), either.
Going forward, I think the prudent focus would be on the maintenence of Purchasing Power with a weather eye on the potentiality of "fat-tailed" events that could upset the Markets gyroscoped by the myopic equations favored by our Financial brethren.
As always, "The differing of 'opines, make'em run the Equines."
Published: April 30, 2006 7:52 PM
My gold investments are doing quite well thank you.
Published: April 30, 2006 9:55 PM
the US government has no choice in the matter... it must inflate or die. falling behind the curve, is a concious choice, and a falling dollar is the desired effect. anyone who thinks the fed doesn't know this needs to think again.
Published: May 1, 2006 9:29 AM
Bill Ott --
My gold investments are doing quite well thank you.
Yep, especially if you realize that they do not appreciate in value, but only in monetary price.
Gold is a storage of value, not an investment. Still beats USD-denominated "savings" accounts.
Published: May 2, 2006 2:54 AM