February’s 4-year low unemployment rate combined with growing concern and speculation over the cost of inflation have led many to buzz about The Federal Reserve tapering off its asset-purchasing and interest-lowering programs.
The Federal Open Market Committee, the group responsible for the Fed’s monetary policy, begins a two-day meeting Tuesday where they are expected to discuss and debate such policy.
But don’t buy into the hype and expect a change at Wednesday’s post-meeting press conference says Gary Shilling, president of A. Gary Shilling & Co.
“If we get anything it will be a huge surprise,” he tells The Daily Ticker. “They’re basically on autopilot now. They’re saying the economy isn’t going anywhere, and it really isn’t.”
Shilling also points out that news stories about dissent between FOMC members are overblown.
“Bernanke is from the academic world,” he points out. "His background is to encourage discussion, dissent. If this had happened under Greenspan it would have meant a palace revolt but this is the way Bernanke has the whole thing structured.”
Markets appear to fear any FOMC announcement due to the belief that excess reserves to the tune of $1.5 trillion will result in higher demand and inflation. Shilling, however, assures that we’re currently in a deleveraging phase and don’t have to worry about a change to Fed policy for at least another three or four years.
The one group that should worry about Bernanke's policy, says Shilling, is savers. Those attempting to put money away for college or retirement are being completley ignored by Ben Bernanke and hurt by his low interest rate policy, Shilling reiterates.
According to a recent report released by the Employee Benefit Research Institute, 57% of U.S. workers have less than $25,000 in total household savings and 28% of American’s have no confidence that they will have enough money to retire comfortably.
“In their zeal for yield they are moving out the risk spectrum," Shilling says. "They’ve bought junk bonds, they’ve bought emerging market bonds; but consider pension funds, endowements, and insurance companies that depend on interest income."
Perhaps the Fed should move some of its focus away from housing and onto the American trying to save some money for a rainy day or a better life, suggests Shilling.
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