The FOMC press release did not surprise anyone except some financial television pundits. However, there are two items that are new as we do our scatalogical analysis of the entrails of FED SPEAK. First is the following line:
“Financial conditions have become less supportive of economic growth on balance,largely reflecting developments abroad.”
This is the only time we can remember the Bernanke Fed explicitly stating its concern about events outside the U.S. Yes, we know the FED extended its DOLLAR SWAP LINES last month but we can’t remember anything alluding to weakness abroad as a reason to maintain a soft FED policy. Furthermore, the FED added the words, “prices of energy and other commodities have declined in recent months.”
This gives greater credence to the Bernanke FED being an output gap-oriented FED and it’s for that reason the extended period is based on the employment situation and the capacity utilization numbers come in behind. It’s interesting that the FOMC actually mentioned energy and other commodities because we doubt that if OIL was $100 a barrel that the FED would have moved to tighten. Who were they trying to assuage with that language?
PUT THIS ON YOUR RADAR SCREEN: The British POUND performed well after OSBORNE brought the austerity budget forward. The question must be asked: If the POUND was rewarded for fiscal austerity, is the DOLLAR going to be punished for continual profligacy? Our initial thought that was that Britain would be punished for promoting austerity over growth and that the U.S. might be the recipient of investment money as they went the route of economic growth at all costs. We don’t know what the technical picture says about the POUND but from the action we urge those looking for a change in the risk on/risk off paradigm to do their homework.
Tags: Bernanke, Dollar, Dollar Swap Lines, Fed, FOMC, oil, Osborne, Pound
June 24, 2010 at 3:42 am |
“Our initial thought that was that Britain would be punished for promoting austerity over growth and that the U.S. might be the recipient of investment money as they went the route of economic growth at all costs. ”
This Keynesian thinking that we can spend our way out of our economic predicament, is totally off base. A problem caused by debt cannot be solved by increasing our debt. U.S. national debt is approaching our GDP and total debt is at 370% of GDP, an unsustainable level. The FDR New Deal didn’t work, and by 1939 unemployment rates were still too high while US debt had mushroomed. There is no painless way out of our predicament except deleveraging, and restructuring. The current path will not only cause us pain but will burden the next two generations.
June 24, 2010 at 4:32 am |
yes –but the dollar has been a safe haven recipient and will that now end .That is the question going to show itself soon very soon as the british pound is beginning to show
June 24, 2010 at 5:27 am |
G-20 meeting and how “the market” reacts early next week will tell us a lot.
John
June 24, 2010 at 8:10 am |
[…] More… […]
June 24, 2010 at 8:37 am |
If the UK perseveres in an austerity program and is serious about reducing debt, and if the US continues spending like a drunken sailor, (which will not produce long term growth but just results in a momentary high), the dollar will wake up with a hangover relative to the pound.
This is for intermidiate and long term perspectives.
June 24, 2010 at 9:28 am |
i have not been getting your postthanks
June 24, 2010 at 10:11 am |
don–i don’t know why—please re register and let us know if the problem persists