The markets are digesting the Federal Reserve’s post-meeting comments today. We now see dissent at the Fed — usually a bulwark of unanimity — virtually mirroring the conflict in the US Congress. Does the fed have its own version of the Tea Party now? Severe policy divisions at the Fed must be disconcerting to investors, particularly equity investors. Bond investors on the short end have made a small fortune as rates have dropped precipitously with the Fed’s new two-year “put” (the cap on short rates), well trough the next election and Chairman Bernanke’s term). The Fed’s majority has clearly passed the “stimulus” ball back to Congress and the Administration except for the internally-contested interest rate cap. Yet this hyper-extedned low-rate commitment seems to also suggest that the Fed believes there will be a “grand bargain” by the end of the year on US debt and wants to push against the resultant fiscal drag on the economy. All in all, it’s a confirmation of a low-growth (BUT NON-Recessionary) “new normal” for the economy.
Filed under: Uncategorized, Federal Reserve; "New Normal"; Recession
