Investment Chart Kondratiev Wave

Investment Chart Kondratiev Wave

Friday, 27 January 2012

FED: inflation below official target, QE interesting, LT FED rate 4%

The last meeting of the FED had several new things: an official inflation target of 2% (for the first time in history) and a new way of communicating: All 17 members of the FED had to give their forecasts for the FED rate in the coming years. The Fed hopes that people will believe even more that they will keep interest rates near zero for quite some time. Officially the FED told the rates will remain near zero until (at least) the end of 2014, not half of 2013 as previously was signaled and from the individual forecasts you can even deduct that according to the forecasts a hike will arrive in 2015 (or maybe further away).

The FED suddenly told they had an inflation target of 2% for the PCE (prices of personal consumption expenditures as measured by the GDP) and the central forecast (chart of ABN AMRO) shows they expect the PCE to remain below 2% in the coming years. Meanwhile they expect the unemployment rate will decline but remain way to far above the 5-6.5% that could be normal (NAIRU). That and the fear to lose their job made Bernanke to announce a new round of QE (quantitative easing) was an interesting idea.

The individual forecasts of FED- members are indicated with dots by Calculted Risk. There is an Albanian majority that the FED rates will not rise in the coming year, but also that the FED thinks in the long run the FED rate ought to be 4%.

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