by Howard Gold | September 14, 2012 7:30 am
Thursday’s announcement after the two-day Federal Open Market Committee meeting was jaw-dropping. Here’s what it said:
The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.
So, “to support a stronger economic recovery,” the Fed will purchase $40 billion of additional mortgage-backed securities a month indefinitely and will continue its current purchases through the end of the year, for a grand total of $85 billion a month through December. That means a $340 billion boost in the Fed’s balance sheet by the end of the year.
As if to dot the “I”s and cross the “t”s, the Fed’s statement continued:
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools [and it] expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. [It] currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”(Italics added.)
This is extraordinary. Not only is the Fed entering uncharted territory with an open-ended purchase of hundreds of billions of dollars worth of securities, it has extended the period of ultra-low interest rates for an entire year, long past the time Chairman Ben Bernanke or a successor is appointed to a new term. And the FOMC voted 11-1 in favor of it.
So, what do we make of this? Here are some takeaways:
Bernanke has gone way beyond where anyone expected, and it makes me nervous. I’ve been pretty critical of hyperinflationists Marc Faber and Peter Schiff, who have warned about the Fed’s “money printing” for years. But now I’m starting to wonder if they have a point.
Ben Bernanke is conducting a great experiment. Either his unconventional methods will get the economy going again and spur hiring or it will cause the Fed’s balance sheet to balloon with not much effect on the economy.
This may well determine whether Ben Bernanke is seen as the best or the worst Federal Reserve chairman in history.
Read more commentary on the economy and the presidential campaign of 2012 at www.independentagenda.com.
The opinions contained in this column are solely those of the writer.
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