Is Inflation the Fed's QE Loophole? - Gainesville Coins News
No Minimum order! We accept Pay with Credit Card
Call Us: (813) 482-9300 Mon-Fri 9:00AM-6:00PM EST
Login or Register
Log into your account
About Gainesville Coins ®
Billions Of Dollars Bought And Sold A+ BBB Rating 10+ Years No Hidden Fees Or Commissions All Inventory Ships Directly From Our Vault

Is Inflation the Fed's QE Loophole?

blog | Published On 12/14/2012 1:32:26 PM by Gainesville Coins

The Federal Reserve adopting the "Evans Rule" policy to govern the duration of quantitative easing in the U.S. threw markets for a loop, coming as it did on the heels of a surprise drop in the unemployment rate. Suddenly, the Fed's new target of 6.5% unemployment looked a lot closer than the previously promised "at least through mid-2015." Markets will now wonder if the bond buying will suddenly stop one month.

However, little attention is being paid to the other half of the benchmark, that states that QE will continue until the unemployment rate hits 6.5% "...as long as forecast inflation levels remain below 2.5%." What if unemployment stays above 6.5% while inflation comes back? Since the drop in unemployment was from people giving up, not people finding jobs, we could see unemployment stay at 7% or above as those who find jobs are replaced by those re-entering the job market. All the while, the Fed will be pumping $85 billion a month into the economy, using freshly-printed money. There's a very real possibility of inflation rising above 2.5% long before unemployment drops to 6.5%, which would mandate an end to quantitative easing by the Fed under their own criteria.

Except...

The Fed itself sets the forecast inflation numbers looking forward.

Tim Iacono covers this subject in an excellent article on FinancialSense.com, titled "The Fed's New, Squishy Inflation Target". Recommended reading, indeed.

by David Peterson

This site uses cookies for analytics and to deliver personalized content. By continuing to browse our site, you agree that you have read and understand our Privacy Policy.