On Wednesday, August 1 Chairman Bernanke provided an update on the Federal Reserve's position on the U.S. economy. He commented briefly in a negative tone on U.S. GDP growth, unemployment, consumer spending and the housing sector. He said the Fed's U.S. inflation expectations remained stable. He reconfirmedthe Fed's policy of reinvesting in U.S. treasuries until December 2012.
Mr. Bernanke did not announce the further quantitative easing the financial markets were broadly thought to be looking for, and that is said to be one of the primary reasons those markets have declined somewhat over the past two days.
My comments:
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if the financial markets indeed are instantaneously influenced (positively or negatively) by the addition or non-extension of U.S. quantitative easing I think that:
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in these uncertain and volatile economic times this confirms the financial markets today to be largely trading markets; and,
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this is highly worrisome because I see quantitative easing as simply an extension of the 'over-levered postponement game' that has been played out since 2008;
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that 'over-levered' postponement game' has succeeded to date in doing little but keep the U.S. (and to some degree World) very leaky economic boat afloat, but hasn't propelled it to meaningful economic growth - and hence has not propelled it to meaningful economic recovery;
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the Federal Reserve presumably has only 'so many arrows in its quiver'. Its lack of introduction of new quantitative easing at this time may be nothing more than it playing a waiting game to see what plays out in the Eurozone. Who wants to run out of bullets before a war is over?; or,
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in the face of continued U.S. monthly trade deficits, ever increasing National Debt, and all the other negative economic issues currently facing the United States as (or perhaps better said, 'some of which were') articulated by Mr. Bernanke in his Wednesday update, perhaps the Federal Reserve doesn't have as many bullets in its arsenal as some would have us all believe.
Topical Reference: Fed Statement Following August Meeting, from Real Time Economics, The Wall Street Journal, August 1, 2012 - reading time 3 minutes.
