Fed Remains Status Quo. What Else Could We Expect?

The Federal Reserve Bank made it's decision to keep interest rates unchanged at 0.00 – 0.25 percent. This is the same level that the overnight bank lending rate has been since December 2008. The Federal Reserve also said that they would continue with it's quantitative easing or treasury purchasing program.

The central bank did not mention the sharp increase in the 10 Year Treasury Note yield. The yield on the 10 year Treasury has risen by nearly a full point since the last Fed meeting on November 3rd, 2010. Remember a higher yield on the 10 Year Treasury Note increases mortgage rates and that is something that the Fed has verbally said that they would try and keep low. In any case a stronger yield is telling the world that inflation is creeping in the market as the Federal Reserve insists that inflation is very low. It is very difficult for many traders and investors to say that inflation is low and contained when gasoline, gold, silver, copper, cotton, and most other commodities remain at highs for the year.




Nicholas Santiago

 

In such matters the Fed is always re-active, not pro-active.

 

I think the rise in yield has less to do with inflation and more to do with the extension of the tax cuts and Moody's threat to downgrade.

http://finance.fortune.cnn.com/2010/12/14/moodys-warns-on-tax-cut-deal/?section=magazines_fortune

"...last week's agreement between the White House and congressional Republicans should bolster economic growth in the next two years – but at the expense of the nation's already perilous budget position down the road."

"...raise the U.S. debt-to-GDP ratio at 2012 to 72-73% from around 62% now, Moody's said. It said that without the tax package, that number might have been around 68% in 2012."

"...the ratio of the government's outstanding debt to its annual tax take will decline less sharply, to just under four times. Moody's called that "a very high ratio," both historically and compared to other highly rated government debt issuers."

 

it's interesting

Fed can't stop QE2 as debt monetization is the only possible finance source for US government

So they have no choice but to monetize all US debt on all levels - governments, state, muni

QE3, QE4, QE5, QE100 till complete destruction

 

Quite frankly, what I cannot understand, is how the government continues to declare that inflation is near zero.

I live in the high-cost state of NY, and to me, inflation is absolutely rampant. I know government doesn't use certain data in its inflation calculations, but here is the year-over-year increase in costs, for some of my higher budget items for this past year:

- L.I.P.A. (electric) - increase of 4.5 %

- Home Heating Oil - increase of 18.5 %

- Local Real Estate Taxes - increase of 4.5 %

- Health (medical) Insurance - Increase of 28.7 %

- Gasoline (at the pump) - increase of 23 %

- Cable TV - increase of 3 %

- College Tuition (for my oldest) - increase of 5 %

- Food - increase of 7 %

Most of the above are my big ticket items, and make-up over 50 % of my monthly budget.

Good thing that inflation is running near the zero level, eh ????

And P.S. - Although runaway inflation (which is where we are eventually headed) will destroy our currency, won't it make our debt effectively cheaper (i.e., pay off existing debt in cheaper dollars) ? Could that be the government's strategy.....let inflation creep in rapidly, but keep everyone in the dark about it, with these totally misleading government inflation reports ?

 

you don't have to go that deep..look at today's PPI numbers...CPI is going to show same picture. inflation is f* rampant.. gas..food..cloth

 

the fed needs to read the 'no free lunch' economic theory.

consumers are paying for his 600 injection of phantom money to wall street who borrow for only 6 month to a year in higher commodity prices and soon clothing will tiple or at least double in price...clothing is a need and demand will plummet for clothing

long term rates like 5 -10 years is what drives the economy and which corporation rely on and those long term rates for corporations are rising. or corporations who need to borrow money canno get loan financiing or refinancing in 5-10 year loans. banks are not lending. and hoarding cash for themselves. if companies cannot refinance or get loans at reasonable terms they shut down businesses or shut down postpone projects===less jobs.

it takes 2 years to build or get any real estate project going so 1 year loans are useless.

 

0-.25% is overnight and short term loans..

those loans are useless in the real economy. 3-6 month loans are totall useless for businesses expansion or growth