Yale & Jeff Hirsch
About the Editor Jeff is editor in chief of the Almanac Investor newsletter Stock Trader's Almanac, StockTradersAlmanac.com, and the Hirsch Organization. He makes frequent appearances on CNBC, CC, Fox, and Bloomberg. Yale Hirsch is founder of the Stock Trader’s Almanac.
In an effort to achieve greater policy transparency, the FOMC set an inflation target today following its two-day meeting. The index chosen as the benchmark was their preferred personal consumption expenditures price index, which apparently can be reconciled against changes in CPI in about 40 quick steps or so. An official target to shoot at is welcome and will certainly make a great talking point in future discussions, but it does little to bind the FOMC to take appropriate action when inflation meanders away from the target. Plus, will the target rate of 2% apply to actual data or merely future expectations? Expectations can remain unchanged far longer than actual data. One area where the FOMC was quite clear today was in the maintenance of its zero interest rate policy. Exceptionally low interest rates are now expected to be maintained through 2014. This is roughly an additional 18 months longer than previously anticipated. This declaration was more than sufficient to reverse this morning’s decline in equity markets and send gold soaring back above $1700 per ounce. In the longer term, it seems highly unlikely that either two of these actions will have any meaningful or lasting impact on the U.S. economy. Keeping rates at zero will keep the Treasury bond bubble inflated and keep the costs of carrying a $15 trillion (and growing) national debt down, but beyond that, what will another three years of zero rates do that the previous three years has not already done.
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