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Little of note in the statement: no QE3 explicitly in the form of LSAP, which an S&P over 1300 and crude at $100 made prohibitive. Instead the Fed is extending ZIRP through 2014, from 2013, which as commentarors, primarily Goldman had expected, and which means sub-3 year rates will never be above zero again. Our prediction for a €100 trillion 1 week MRO is not looking quite as insane anymore. Since this is incremental easing, the reaction in gold says it all.
Summary:
Lacker objects as he "preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate." Complete redline comparison attached.
Inflation? What inflation?
A look at the FRED graph shows why inflation is not an issue at the moment. US Banks are depositing the bulk of QE funds with the FED. But if the unemployment problem is to be solved, banks have to start to lending and that is when the FED will face real problems. (For a comment on the most recent Unemployment numbers see Cooking the Books).
All this is without taking Europe into consideration.
Looks like the probability of Greek defaulting has risen to over 70%. From public comments, it seems that we are now relying that since Greece is ‘old’ news, contagion won’t occur. There is probably some basis for that belief. But, even if contagion is averted, the Italian problem won’t go away. I have always believed that Italy will be the break point for Europe.
The ECB has opted to move into ‘back-door’ QE. It now finds that if it is to ’save’ Greece, it will have to take a loss on the bonds it bought. But so far, it is resisting taking any of the 70% loss it is asking other bond holders to take. That does not augur well for the future.