Federal Reserve's Inflation Renunciation

Federal Reserve's Inflation Renunciation

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Federal Reserve Chairman Ben Bernanke held his first-ever press conference a few weeks ago, aimed at putting the American public back to sleep with a false image of carefulness, honesty and transparency. It attempted to do paint the picture of a federal agency being responsible for nationwide monetary policy in a way that stabilizes prices and maximizes employment. But at the end of the day, the American public was left disappointed.

Mr. Bernanke, with his attempt to convince the public that he is "on top of things," did more harm to the Federal Reserves credibility than good. Bernanke, being first and foremost an academic scholar, knows that the markets dont like surprising revelations. And, unlike his predecessors, Bernanke also realizes that the financial markets are a critical part of the economy. A majority of experts will agree that the Feds "QE2" program, which could also be called a massive backdoor-bailout of the insolvent banking system, did its job by moving asset prices in the right direction. Of course it did! How could it not move stocks and corporate earnings higher? There were hitches, of course, as some of the recent commodity price increases can be directly credited to the Fed's bond buying program.

However, when the man who "saved the economy with bold, decisive action in 2008" went in front of the cameras with his first-ever press conference, the masses were expecting that little extra, looking for something special. But it was quite visible that the crowd left the scene confused, and thinking hard as to what exactly was the purpose of the long, articulate and careful speech.

In a nutshell, Bernanke made clear the following facts: The present rate of inflation is right where it should be, according to Fed economists. He added that QE2 is on schedule for its finale at the end of June, and that Inflation and the US dollar are not expected to be of major concern through the coming months. He also clarified that the phrase "extended period," from the Fed's recent policy statement, only means two more Fed meetings. They expect the current dollar trend to reverse as the economy continues to grow. Interest rate policy will remain as is for at least "a couple of meetings," which pushes to August the earliest chance for an interest rate increase. Mr. Bernanke also reminded the press of the Feds so-called dual mandate: steady prices (inflation) and maximum employment. To keep their mandate, the Fed will do what it has to in order to improve the economy. He thinks that QE1 and QE2 did just what he had anticipated, which was to prevent deflation by carefully depreciating the USD. Bernanke also added that the Fed could do little about high gas or oil prices, as it is not in the business of selling these commodities.

Somehow, Bernanke missed the significant fact that it is the inflation of the money supply thats the actual problem. He has once again guaranteed to keep interest rates low, supporting an environment of high risk speculation that could only lead to more systemic crises down the line. He will continue with QE2 and continue pumping newly-printed money into the banking system - they just won't call it QE3. It is high-time that Bernanke should give up and accept that they are not doing anything to improve the overall economic condition, and are still contributing further to our fundamental economic problems.

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By Chris Termeer.



Article Originally Published On: http://www.articlesnatch.com


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