What Now for Janet Yellen?

By: Matt Machaj | Mon, Dec 2, 2013
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"It deserves emphasis that a 6-1/2 percent unemployment rate and inflation one to two years ahead that is 1/2 percentage point above the Committee's 2 percent objective are thresholds for possible action, not triggers that will necessarily prompt an immediate increase in the FOMC's target rate."

Stepping aside by Bernanke remains a bit of a mystery, about which nobody cares. Why is he quitting his office? He was considered as the most competent man for the job - sophisticated money printing analyst, who is brilliant and capable of comprehending and directing Fed's special operations. Now, he shall be succeeded by another brilliant person, who believes in those operations. Why then change? Two possible answers arise. The first one - Bernanke is tired and has had enough. Not only the experience was exhausting, but also the criticism was stressful. The second one - Bernanke stopped believing in continuation of special operations, and was interested in stepping back. Since this was rejected as unacceptable, so he had to step back. Let us not forget that in his texts before he was chosen as the Fed's chairman he warned that the special operations may not work that well, because they could create a specific cocoon of various assets disconnected from the real pricing process (exactly what has happened!).

The certain fact is that Yellen is ready to continue with Fed's expansionary operations. Therefore no tapering on the horizon so far. More money printing means greater chance for gold price to rise in the coming years.

In discussing unconventional tools in the realms of zero interest rates Yellen indicated that tapering is not on the horizon as long as two key variables remain at specific level. If the unemployment rate stays over 6,5 percent and inflation does not reach levels permanently higher than 2 percent goal, then the Fed is staying on the same course. This is basically what Bernanke was suggesting, but with higher emphasis on those specific levels. Bernanke left some uncertainty in his statements. Yellen is clear: we print until unemployment is over 6.5 and as long as the official inflation rate does not reach unacceptable levels.

Actually even more, because she highlighted that under those conditions Fed's action is only "possible", and not automatic. Seeing her concern about labor markets, it can mean that even if the official rate stays below 6.5 percent, then the Fed could still go on.

Yellen believes in the classical Keynesian framework: spending keeps the economy going. As long as the inflation rate is not running away, we should keep adding more money. If there is no direct inflationary pressure, and the economy is in recession, then spending is too low.

Well, this is all good news for gold bugs. If the central banker can do something for them, I guess the best way is to run the printing press.

Thank you.

 


The above is based on the November Market Overview report. We have just posted the December issue entitled "Tapering is not Tightening: Decomposition of Tapering" in which we discuss why tapering is not the same thing as tightening, why tapering has already happened in 2010 and what kind of tapering can actually take place. If you're interested in the above and their implications on precious metals and your portfolio, we invite you to subscribe and read the latest Market Overview report.

 


 

Matt Machaj

Author: Matt Machaj

Matt Machaj, PhD
Sunshine Profits' Market Overview Editor
Gold Market Overview at Sunshine Profits

Matt Machaj

Matt Machaj, PhD, is an economist whose research is focused on the monetary policy, the gold standard, and alternative monetary regimes. Matt is a university professor, blogger, publicist, founder of the Polish Mises Institute branch, member of Property and Freedom Society, and laureate of Lawrence Fertig Award.

He is a free market advocate, believes in personal liberty, responsibility, and believes that social power is a better alternative than government power. Personally he believes that intelligence is the most powerful thing in the universe and beyond. He is no fan of conspiracy theories, but likes to study conspiracy practices.

You can read Matt's premium analysis at Sunshine Profits, where he publishes his gold Market Overview - monthly reports that focus on the big, fundamental picture and key things that can affect investors over the long run.

Disclaimer: All essays, research and information found above represent analyses and opinions of Matt Machaj, PhD and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matt Machaj, PhD and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Matt Machaj, PhD is not a Registered Securities Advisor. By reading Matt Machaj's, PhD reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Matt Machaj, PhD, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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