The Fed Cannot Move Without A Crisis… And One Is Coming
January 26, 2012
Well the Fed disappointed as I stated it would. How anyone could be surprised by this is beyond me. The Fed was admitting that the consequences of QE rendered it less “attractive” as an option as far back as May 2011.
Moreover, the last six months have shown the Fed to be relying heavily on verbal intervention rather than direct monetary intervention. Every FOMC meeting (and any time the market takes a dive) some Fed official steps forward and promises that the Fed stands ready to help if needed.
The reasons for this are three fold:
1) Why bother with monetary intervention when you can get the same effect from verbal intervention?
2) The Fed is too politically toxic now to simply unveil a massive new monetary scheme without a Crisis hitting first.
3) The Fed is well aware of the consequences of QE (higher food and gas prices) and while it focuses on CPI as the measure of inflation, the political pressure engendered by higher costs of living are certainly on the Fed’s radar.
In plain terms, the bar for more QE is set much, much higher than the vast majority of analysts realize. The reason is that the Fed can no longer simply prime up the printing presses if the economy takes a dip.