Daily Archives: September 11, 2012

John Authers

Whether it likes it or not, the Federal Reserve has been pulled into the political thickets. The demand is for it to “do something”. Whatever it does at its meeting this week will have  political ramifications, and you do not need to belong to the Ron Paul faction to question whether further QE of any kind is necessary at this stage.

As James Mackintosh pointed out in the Short View, inflation expectations and asset prices are both rising now, rather than falling as they were before QE1 and QE2. This Fed has a philosophical aversion to deflation, but there appears to be no imminent danger of that. 

James Mackintosh

The most profitable way to be wrong over the past five years was to bet that frantic printing of money by central banks would create inflation – so buy gold. Since the start of 2007 gold has risen at an annualised 19 per cent, a tasty return, particularly when compared to equities.

Yet, there’s been no sign of consumer price inflation, even as the US Federal Reserve explicitly targets asset price inflation (Fed jargon calls this the “portfolio channel” for monetary transmission of quantitative easing; in English that translates as rigging the market).