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FOMC Ignoring Inflation
Pinnacle Digest writes: In Axel Merk’s latest article he explains how the FOMC is deliberately ignoring both growth and inflation data and is far from transparent with its intentions. On top of that, Merk believes that “At best, the FOMC’s intention might have been to not rock the markets two weeks before the election.”
Keep in mind that the Fed is suppose to act completely separate from Washington with no political ties.
Merk explains that since the last FOMC meeting, prior to the one this week, the economic picture has improved, including unemployment. However, the FOMC’s message this week was practically verbatim from its previous statement. It basically ignored the improvements, refusing to let investors speculate that tightening may be approaching as that could have rattled the market and disrupt the election process. Merk stated that “The FOMC chose to ignore reality, possibly afraid of an unwanted reaction in the bond market.”
From an inflation standpoint, Merk believes the FOMC is way off the mark. Although it pointed out that inflation recently picked up somewhat, it was largely blamed on increasing energy prices. Merk believes that may be misleading. In addition, the FOMC stated the longer-term inflation expectations remained stable. In response to that forecast, Merk stated “Not so, suggests an important inflation indicator monitored by the Fed and economists alike: 5-year forward, 5-year inflation expectations broke out when the Fed announced “QE3”, its third round of quantitative easing where the emphasis shifted from a focus on inflation to a focus on employment. This gauge of inflation measures the market’s expectation of annualized inflation over a five year period starting five years out, ignoring the near term as it may be influenced by short-term factors:”
In short, the market totally disagrees with the FOMC forecast that long-term inflation remains stable. Does the FOMC really believe what it is telling the public is the question.
Click here to read Merk’s entire report.