Aug 18, 2010 1:11 pm


cphaed comments:

WOULD SOMEBODY PLEASE.....AUDIT THE FED? AND THEN END THE FED????? PLEASE! they need to stop printing and diluting our dollar and they need to stop manipulating interest rates, stock prices and gold prices. we can weather the ups and downs of a free market, we cannot weather the ups and downs of manipulated markets.

The solution may be radical but I share the sentiment.

Fed wavers as the world gets the sweats

There does not seem to be a consensus at the Fed – or any other central bank – for further monetary loosening via the printing press, either because central bankers do not think it yet necessary; or because they are worried about expanding their balance sheets further; or, in the case of the US, perhaps because they want to put pressure on Congress not to tighten fiscal policy (for now, at least) by allowing the Bush tax cuts to expire.

Yet if growth does continue to slow sharply, the Fed will surely ease policy further. It is already failing one of its two mandates: maximising employment. It is in severe danger of failing the other: keeping prices stable. Core inflation in the US is dropping fast.

The problem for investors is that they do not know when the Fed might pull that trigger. And since the medicine is powerful, the effects on asset markets are, in the short term at least, likely to be profound.

Those of a more bullish persuasion might argue that the Fed opened the door to more monetary stimulus by its actions last week. The more pessimistic fall into two camps. The first worries about the side-effects of these drugs (notably inflation), if administered in overly large doses. The second wonders how much worse things have to get before the Fed acts and whether, even if it does, the dose will be too timid. Perhaps all the Fed and other central banks can do when it comes to debt addiction, is to manage the worst symptoms of withdrawal.

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