While the Federal Reserve is going full steam ahead with its money printing, a rule that applies to all central banks says it should be doing the exact opposite. Apparently the Fed plans to keep its collective head buried deep in the sand until everything blows up.
Hints from the U.S. Federal Reserve this week that the quantitative easing taper is near ruffled feathers on Wall Street last week - but the idea of less Fed stimulus has caused much more turmoil in certain overseas markets. Here are the places getting hit the hardest.
In one of the most highly anticipated releases of the year, the Federal Open Market Committee (FOMC) meeting minutes from July 30-31 were released today (Wednesday).
They will be picked apart for days - but here's what you need to know.
On Tuesday, Federal Reserve Bank of Chicago President Charles Evans announced that he wouldn't be surprised if the central bank begins to taper its $85 billion monthly bond-buying program in September.
Evans is the third official this week to signal a QE taper. Richard Fisher, president of the Dallas Fed, and Dennis Lockhart, president of the Atlanta Fed, parroted Evans' sentiment.
While Fisher indicated he would prefer to cut back bond purchases in August, Lockhart stated a preference for a September QE taper, although the Fed could wait longer if economic growth and unemployment trends reverse.
But it is Evans' announcement that is the most important. Evans is a member of the activist wing of the Federal Reserve. These members strongly support unconventional monetary policies such as bond buying, which are designed to reduce borrowing costs to spur aggregate demand and hiring across the country.
His views reflect those of the majority of members of the FOMC, the Fed's monetary policy committee.
After the two-day FOMC meeting, the committee just backtracked on all the previous taper talk - here's why the Fed might be "winging it."
Larry Summers for Fed Chief... He's got my vote. Absolutely!
Why? You just have to get to know the guy and you'll see he's perfectly qualified to head the Federal Reserve.
Here's just part of his resume.
From 1982-1983, Larry Summers was on staff at Ronald Reagan's Council of Economic Advisers. That's where Lawrence of Enablers earned his "Deregulate Everything" T-shirt.
After his brief stint on the Gipper's Council, where he was taught how real pros corral free markets for personal profit, the Enabler headed back to Harvard to teach kids (and himself) how to squeeze personal wealth out of mere economic theory.
He got his next shot at stardom as Chief Economist of the World Bank in 1991. He was there until 1993.
While there he wasted no time shining a light on himself.
In a 1991 interview he famously said:
Read on here...
Esther George, Kansas City Fed President, is a hawk among doves. Here’s why she’s concerned about what’s ahead for the economy, thanks to QE. Read more...
There's a key market-moving event this week investors can't miss: the semi-annual Ben Bernanke monetary policy testimony before Congress on Wednesday (House) and Thursday (Senate).
Congressional legislation known as Humphrey-Hawkins (now expired) required the Federal Reserve's Open Market Committee to report to Congress on both the state of the U.S. economy and monetary policy twice a year (February and July). The Fed Chairman testifies before Congress in conjunction with the report.
Traditionally, it had been one of the most important public appearances by the Fed Chairman, back when speeches were rare. But now with news conferences after many Fed meetings, these appearances are less important.
However, this time may be different, as it will be Ben Bernanke's last time in front of Congress before his term ends in 2014. The testimony may once again be a market moving event due to the market's recent concern about the Fed's 'tapering' of quantitative easing (QE).
Which Ben Will Deliver the Monetary Policy Testimony?
The markets have been confused lately by seemingly contradictory statements coming from various Fed members and particularly from Bernanke himself.
In fact, Bernanke's actions lately remind me of Batman villain Two-Face, aka former District Attorney Harvey Dent.
For example, one time he said that winding down QE may happen as soon as the middle of next year. But then, like last week, he flips saying the Fed will not taper the $85 billion a month bond purchasing plan until the U.S. economy is stronger.
He said, "highly accommodative monetary policy for the foreseeable future is what's needed [for the economy]."
Bernanke added that there would not be an automatic rise in interest rates either when the U.S. unemployment hit the Fed's target of 6.5%.
These statements sent the stock market solidly higher with both the S&P 500 and the Dow Industrials nearing their record highs. The S&P 500 and Dow Jones Industrial Average hit new record highs Monday closing at 1,682.50 and 15,484.26.
Traders believe the 'Bernanke put' was back in play. That is, Bernanke will do everything he can to keep stock prices higher.
So which Ben Bernanke will testify before Congress this week? Accommodative Ben or Tightening Ben?
Even as stocks and bonds continue to digest the concept of rising rates and the end of quantitative easing, there are still some great opportunities to land some big gains before any real trouble hits the markets.
QE may be fading away but that doesn't mean you can't profit...
Although you might think the markets simply respond any time Ben Bernanke sneezes, his "cold cycle" is not one of the indicators that will spell the slowing
and eventual cessation of the printing press at the Fed.
There actually is a mathematical formula used by the Federal Reserve to determine when to stop the presses.
I could give you the formula and it would look like this:
POP2 = [1-(%∆POP) m*m] *POP1.
Or, I could share the link to the Federal Reserve's Jobs Calculator in Atlanta.
This is the same calculator used by the Fed to determine when the jobs market and the unemployment rate will align properly. And when they do, it will signal to the Federal Reserve that it might be a good time to start tapering its $85 billion a month bond buying program.
This is what needs to happen: The economy will have to show new job growth.
The Fed is looking for the creation of 150,000 to 200,000 new jobs each month for 6 months. This is how we look now:
Gold has become extremely oversold as it falls below $1,200 an ounce. But based on simple math, it’s due for a reversal… Read more...
After President Barack Obama all but fired U.S. Federal Reserve Chairman Ben Bernanke in a recent television interview, everyone's been trying to figure out who the president will name as the next Fed chief next year.
Of course, Money Morning has long been critical of the Bernanke-led Fed, and in particular its easy money policies of recent years -- namely its zero interest rates and waves of quantitative easing (QE) that have added trillions to the Fed's balance sheet.
That debt, the asset bubbles it has created and the Fed's too-cozy relationship with the Big Banks, has prompted the experts at Money Morning to question whether the Federal Reserve should exist at all.
"I believe the Fed is outmoded and should be disbanded," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, who recently wrote about whether the Fed is necessary. "It's a financial body that has outlived its usefulness and is merely causing us to lurch from crisis to crisis. Barring any change in the notion of what it's there to do, get rid of it."
Still, for the time being, we're stuck with the Federal Reserve. And the next Fed chief - whoever President Obama appoints in January -- will be setting monetary policy for at least the next four years.
One thing's for sure: Anyone who dislikes how Bernanke has run the central bank probably won't be happy with the next Fed chairman either.
As confounding as it seems now, it was not the liberal Democrat President Obama, but Republican President George W. Bush who first appointed Bernanke to head the Federal Reserve in 2006.
That Obama re-appointed Bernanke in 2010 made sense, as they share a similar Keynesian economic philosophy. That is, they both think the best way to help a weak economy is through massive government spending no matter how much debt piles up.
So while Bernanke may be on his way out the door, you can bet that whoever President Obama chooses as the next Fed chief will be just as much of a Keynesian as Bernanke has been - and maybe more so.
Heaven help us.
What's driving the stock market - the Fed or company fundamentals?
The answer, of course, depends whom you ask.
Has most or all of the growth in the market over the past few years been due to the Fed's massive QE easy money stimulus?
Or is it fundamentals like earnings per share and the price/earnings ratio?
We asked three experts to weigh in: Money Morning Chief Investment Strategist Keith Fitz-Gerald, Money Morning Capital Wave Strategist Shah Gilani and Brian Wesbury, the chief economist at First Trust Advisors.
Here's their take.
These 5 contenders for the next Fed chairman in 2014 are each committed to the same tired easy money policies that have failed – aka Bernanke 2! Read more...
As a service to Money Morning readers, we are providing the Federal Reserve FOMC meeting schedule.
The U.S. Federal Reserve's Federal Open Market Committee (FOMC) is a 12-member board within the Federal Reserve system that meets eight times a year to set policy.
In addition to the regularly scheduled meetings, the FOMC can call other meetings as needed. The minutes of a regularly scheduled FOMC meeting are released three weeks after the date of the policy decision.