Your Federal Reserve, making sure there’s always money to spend:
Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed the asset purchase program and the characterization of the conditions under which an exceptionally low range for the federal funds rate will be appropriate.
Bill Wilson, ALG:
[...] what if all this easing was actually prolonging the recession? That’s what Hong Kong Monetary Authority chief Norman Chan thinks might be happening.
Particularly, it is possible the process of deleveraging, necessary for a recovery, is being disrupted by quantitative easing, Chan noted at the 2013 Hong Kong Economic Summit.
Since 2008, financial institutions have shed some $3.3 trillion of debt, and are still deleveraging 4 years after the panic, according to data compiled by the Fed last updated Dec. 6. This is the process of balance sheet repair in the aftermath of the popped housing bubble.
“In order to solve the structural imbalances built up in the past two decades, we must get to the bottom of the problem,” Chan said.
But if all the bailouts are preventing the bottom of credit markets from being felt, then the rebound has been forestalled as the market’s price discovery mechanism remains broken.
Something to consider as Fed head Ben Bernanke promises that central bank support of the economy will continue until the unemployment rate is 6.5 percent. Namely, what if we never get there?
On the balance sheet side of the equation, if the Fed keeps buying U.S. treasuries at the new pace for 10 years, it’ll own an additional $5.4 trillion in U.S. debt — more than half of the $10 trillion of new federal debt that will be issued by 2022.
It already owns $1.6 trillion of treasuries, bringing the Fed’s grand total to $7 trillion, comprising some 27 percent of the $26 trillion national debt projected by that time.
When coupled with its annual $480 billion of mortgage securities purchases, the Fed will be printing more than $1 trillion in 2013 and every year after that to prop up financial markets and the federal government.
In the short-term, the new purchases should push interest rates down even further to historic lows — not unlike Japan has achieved over the past decade.
That is, until inflation ultimately rears its ugly head, at which point the Fed may find it impossible to unwind its position for fear of cutting off the flow of funds to the federal government. That is when the American people will pay — with higher prices for food, energy, and everything else.
This is the problem with a digital currency that can be lent into existence with the click of a mouse by all-powerful central banks.
Now dependent on the central bank, Congress will never balance the budget or significantly cut spending so long as the Fed buys U.S. debt. Bernanke’s policies are poisoning discipline in Congress to ever get our fiscal house in order.
In short, governments that take advantage of funny money see no other way to make ends meet.
Ultimately, printing money to pay the debt perpetuates the current broken financial and political system, in the process passing the hidden inflation tax onto everyone else, who had better hope their wages rise to pay for all this new debt.
The current temporary politicians and Fed reserve folk will have already feathered their own nests, so kicking the can down the road repeatedly — while knowingly setting us up for a hyper-inflationary economy that is inevitable — evinces the contempt our elected officials have for the we the people, a product of their having to debase themselves while pandering for our votes.
The disconnect between the DC trough feeders and the people they pretend to represent couldn’t be more stark.
What we need, politically, is a fresh start. Nuke DC from orbit, I say. It’s the only way to be sure.