Tag Archives: Fed

Investors Seek the Fed’s Guidance on the Economy

What do the latest Fed minutes tell us? Since the recession began, the Fed has set two goals for the economy. Perhaps the foremost objective is to maintain inflation at or near the 2% level. The one crisis point would be a drop in inflation below the flat line. This would indicate that the economy is teetering on the brink of recession. The entire quantitative easing program is aimed at keeping the economy growing. We are seeing the effects of stagnation in Europe with the introduction of negative interest rates to stimulate the economy. So far, the US economy has been expanding, albeit very slowly. The latest 2nd quarter GDP numbers came in better than expected at 4.6%. The media has jumped on this number and is prodding the Fed to raise interest rates. However, all is not that great. The 1st quarter GDP actually fell 2.1% after a brutally cold winter in the Northeast. When taken together these numbers indicate a moderate expansion in the economy. According the Fed’s statistics, inflation in August was at 1.7%. However, this number does not include food, energy and shelter.Continue Reading

The Fed Plans to End of Asset Purchases by October

For investors, following the US Federal Reserve’s policy changes gives us a heads up on possible market movements. Since 2009, the Fed has embarked on an unprecedented policy of quantitative easing with the latest round of buying $85 billion per month of treasuries and mortgage backed securities. The net effect of these policies has been to swell the Fed’s balance sheet to a massive $4.2 trillion. Now the Fed is in the process of unwinding some of this activity. In December 2013 the Fed started “tapering” or reducing these asset purchases. To get a sense of what the Fed is up to we look at the minutes of their recent meetings. These are made public for the previous month. The latest issue was for June 17-18.Continue Reading

Why there is Falling Unemployment and a Drop in the Dow?

On Friday, the Labor Department reported an increase of 288,000 new jobs. The unemployment rate fell to 6.3%, the lowest in 5 ½ years. At the outset this was good news for the market, but as the day wore on, the Dow Jones Averages started to fade and ended down 45.98 points. What should have been a rip roaring rally fizzled. Some blamed the crisis in Ukraine.Continue Reading

Why the Fed’s Money Printing Has Not Lead to Higher Inflation

Over the past four years the US Federal Reserve has provided the economy with more than $3 Trillion. With all that money printing the logical conclusion is that we should be having super high inflation. But this is not happening. Our inflation numbers are running about 2% for core inflation (food and energy excluded.) The recent mini crash in gold prices is also confirming low inflation expectations. Gold prices usually rise during periods of high inflation as they did in the late 1970s following the jump in oil prices. All goods and services followed oil higher and set in motion a time of runaway inflation.Continue Reading