Sunday, December 29, 2013
Bill McBride asks good questions 4-5
4) Inflation: The Fed has made it clear they will tolerate a little more inflation, but currently the inflation rate is running well below the Fed's 2% target. Will the inflation rate rise in 2014? Will too much inflation be a concern in 2014?
A: Trick questions all around. Inflation is what the Fed says it is. The idea that house prices and taxes are not part of inflation is absurd on the face. The excuse for house prices is that they are assets. Okay then, only count the non-asset contributions of housing costs. The obvious reason is that the current system games the results favorably.
5) Monetary Policy: It appears the Fed's current plan is to reduce their monthly asset purchases by about $10 billion at each FOMC meeting in 2014. That would put the monthly purchases at close to zero in December 2014. Will the Fed complete QE3 in 2014? Or will the Fed continue to buy assets in 2015?
A: Interesting phrasing. The Fed is poised to continue to provide stimulus for at least another year. In a year the Fed will still own a three quarters of a trillion more than they do now. That's just QE3. As we have seen there are other tools in the burglar's bag. More than $400 per family in the US QE3 alone. I don't need to tell readers of EN that you aren't the average "family" with respect to this burden. And yet strangely despite this added debt burden our disposable personal income seems not to go down.
So, in summary. Inflation will be what they say it is and the purchases will continue under current and different guises.