That is the big thing to take away from today's FOMC statement in my opinion.
Here are the two key excerpts in my view:
"Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."
"The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back towards its objective over the medium term."
If anything, the Fed became more "dovish" if you ask me as they are back to talking about deflation concerns. This translates to no let up for the foreseeable future ( to use Bernanke's words from his recent Congressional testimony) for the bond buying program referred to as QE.
One would expect this to weaken the Dollar against some of the majors, as is currently taking place, and by default help to shore up the gold price. However, it is this concern about the lack of inflation that should get the attention of gold traders. They are focusing more on that than they are on the weakness in the US Dollar.
However, and I think this is important, their statement just further underscores the fact that all future Fed actions in regards to the QE program are going to continue to be heavily reliant on future economic data. If the data shows steady improvement, talk about tapering will increase. If the data shows weak or lackluster growth, tapering talk will be put off. In other words, traders/investors are on the same exact page with the Fed in that we are all going to be sitting around looking at each piece of economic data as it is released and attempting to view it in the light of potential Federal Reserve action based upon it.
An example - if we get a strong payrolls number in the upcoming jobs report, tapering talk will pick up, the Dollar will rise, gold will sell off and the bond yields will rise. If the number is anemic, the opposite will occur. As you can see, we are effectively right back to where we were before today's FOMC statement was released.
Isn't it peachy that our markets have degenerated into entrail reading of the FOMC?
a crying shame for sure; steve in sparks
ReplyDeleteThere is an overwhelming amount of bad news from companies tied to commodities right now. The Uralkali news is just one piece. Why in the world would Uralkali break oligopoly pricing unless volumes are really that bad? TRMB missed, despite a secular tailwind at its back. Tractor sales in the US are getting worse.
ReplyDeleteFor Chinese related companies, its interesting watching the advanced manufacturing equipment companies post fine results while the bulk equipment providers miss. Value-added mfg'ing continues to grow there, but the commodity industries are clearly in over-supply and capital investments are falling.
It all spells deflation, no matter what conspiracy theory anyone has about the Fed, JPMorgan, etc... Ben has printed trillions and nothing has changed. I personally think the stock market is up the last few years because markets always rally after massive sell-downs and frankly we've never witnessed a global slow-down => good houses in bad neighborhoods are just fine. Do we really know that treasuries wouldn't be close to where they are now without the Fed? The world is in deflation still while the velocity of money continues to fall, Fed or no. Maybe treasury yields would be even lower if it wasn't for Fed purchases due to a full on deflationary collapse?
I don't know, but it sure doesn't make me feel happy about commodities right now. I own gold for different reasons.
"Isn't it peachy that our markets have degenerated into entrail reading of the FOMC?"
ReplyDeleteRick Santelli's "The FED loves me, the FED loves me not" could become a classic...
I'm sure the central planners now feel very good, since they have managed that the market does exactly what they want. Like they didn't see 2007 housing bubble and the 2000 dot.com bubble, I' absolutely sure they right now also do not recognize the artificial "the FED loves me, the FED loves me not" state of the "markets", which five years(!) into recovery cannot stand on their own...