The Federal Reserve is meeting this week, but experts claim there is little chance the Fed will stop or scale back the central bank’s bond-buying stimulus. But despite these predictions, USA Today reports stocks were sluggish Wednesday as investors looked ahead to the conclusion of the Federal Reserve’s two-day monetary policy meeting.
According to the news, trading on the Dow Jones industrial average and S&P 500 index were each up less than 0.1%. The Nasdaq composite was up about 0.1%, although both were trading at record highs by the end of Tuesday. In more depressing economic news there are reports that the private sector added a measly 130,000 new jobs and the consumer price index is up only 0.2%.
What can we expect from the Federal Reserve?
Economists continue to watch the Federal Reserve to determine whether they will begin to taper off their buying or whether it will have to be delayed until 2014. Many of the economists claim the Fed Reserve will continue to their buying of an estimated $85 billion in monthly government bond purchases, which the Fed maintains is necessary to hold down interest rates and spur economic growth.
Although Fed Chairman Ben Bernanke had given some clues that the buying could stop as early as this December, they failed to make their move last month, holding off instead. Why? According to the Fed Chairman, the continued purchases were necessary to stimulate job grown and to limit rising interest rates. The Fed also noted they were concerned about “the looming budget showdown in Congress.” A showdown which lasted for 16 days because lawmakers could not agree on a debt deal and whether to increase the borrowing limit for the U.S.
The Federal Reserve also notes that due to the government shutdown they have not received vital reports they need to make sound economic policy decisions, and the reports that have come out in the past week have been weak or mixed.
What does Peter Schiff say?
Investment pro, CEO of Euro Pacific Capital and gold advocate, Peter Schiff, isn’t drinking what the Federal Reserve is serving. He claims the Fed Chairman Ben Bernanke is trapped in a “monetary roach motel” that will force the central bank to continue quantitative easing until there is a true monetary crisis.
“The recovery that the Federal Reserve is bragging about helping create is 100 percent dependent on the quantitative easing that it is supplying,” according to the CEO of Euro Pacific Capital. “Like every drug, the economy’s going to need more of it to sustain the phony economy. … Far from diminishing QE, the next big move is going to expand it.”
Quantitative easing began after 2008 on the heels of the financial crisis. It involves purchasing $85 billion a month in Treasury Bills and mortgage-backed securities. Schiff, who opposes the Federal Reserve’s strategies argues, “at some point the dollar is going to fall off the edge of a cliff,” he said. “Bond prices are going to go down, and the Fed is going to have no choice but to slam on the brakes, and then we are going to have a worse financial crisis than we had in 2008.”
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