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Inflation? Naw.

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After years of low interest rates and quantitative easing that amounts to more or less printing $4.5T, it would be easy to predict that inflation is bound to rise eventually. More dollars means, by supply and demand, that they have to be worth less, yes?

But the opposite is happening as the US economy charges ahead as the strongest economy in the developed world. While we have stopped stimulating our economy, Japan and Europe are only accelerating their programs. The US is poised to lose the currency war with the strongest currency standing – and a guarantee of lower prices for a lot more than just gasoline in the near future.

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Yellen’s Dashboard – Update

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Another quarter has come, and it arrived with good news on jobs. The stock market didn’t tank right away, but most investors agree that the daze of puffed-up valuations for everyone are over. The consensus seems to be that rather than a general fall, investors will have to be more selective and careful. This is consistent with an economy that is changing and gradually turning over, ahead of the next Big Thing that will propel a real bull market in coming years.

But where do we stand with respect to Yellen’s Dashboard – those key economic indicators that Fed Chair Yellen said she’d be watching for movement where there has been so little over the past few years? We don’t have all the data to fill in where 3Q14 stands, but we have most of it. And it all looks good. Which is to say bad, if you’re so minded, because it really does look like the Fed is going to raise rates.

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Point of No Return

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Low interest rates are a good thing, right? They are if you are a borrower, but not if you are a saver. People salting money away for retirement right now are getting almost no return on their savings, thanks in large part to a zero interest rate policy (ZIRP). Banks can borrow money from the Fed with no interest, so why would they pay interest on ordinary deposits, CDs, or any other money making instrument?

There is a lot of talk about the Fed’s policy of quantitative easing, which currently is performed by buying $85B in mortgage backed bonds every month. They may or may not start “tapering” to zero sometime in the near future. Beyond that, at some point interest rates have to come off of the peg of zero that they have been at since 2008, but that’s even further into the future. And the implications are vast.

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Fed Funds Future Foggy, Fudgy

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The stock market is surging on solid corporate profits. Jobs are being created, if a bit slowly. Should the Federal Reserve continue its policy of Quantitative Easing? The short answer is probably not. But the policy of buying $85B in mortgage backed securities is continuing, at least for the foreseeable future. And with Janet Yellen, the Fed Vice Chair, slated to replace Ben Bernanke in January we have every reason to believe that the policy will continue.

It’s time to examine how the Fed sets their benchmark interest rate, the Fed Funds Rate, and what we can reasonable expect them to do with it in the near future. It shows just how much the Fed is really in charge of the economy – absent a Federal Government that is doing what needs to be done.

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